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Investors Corner
The Market
London shares ended the last session at intra-day highs, encouraged
by Wall Street’s bounce after the previous day’s plunges
as the price of crude eased back from the Middle East conflict-induced
highs. Analysts said that much stronger-than-expected US data,
which ought to have fuelled fears of a further hike in US interest
rates, was ignored.
The FTSE 100 index was 77.7 points higher at 6,209.6, its best
levels for the session so far, well above a morning low of 6,050.7;
all the broader FTSE indices closed mixed, with the techMARK
a rare 14.55 points higher. Volume was solid, with 1.733 billion
shares changing hands in 109,350 transactions. On Wall Street,
the DJIA recovered a big chunk of the previous night’s
sharp falls, adding 136.52 points at 10,171.84, while the Nasdaq
index rallied from opening falls, up 94.23 at 3,168.40.
Leading shares in London started the session on a very cautious
note after tensions in the Middle East escalated overnight,
remaining on offer in very quiet midmorning trade though the
expected rout failed to materialise, with investors remaining
firmly on the sidelines. Leading shares were still on offer
towards midday, but sell pressure stayed muted as investors
failed to enter the market, ahead of developments in the Middle
East and US inflation and sales data.
At the close of trade, selected “new economy” stocks
remained on offer despite the Nasdaq rally as investors fretted
about a possible Middle East war, the spike in oil prices and
the global shake-out in equity markets. Freeserve led the pack
lower, down 27 pence at 188 pence, while Sema Group fell 69
pence to 1000 pence and Marconi lost 23 pence at 830 pence.
Aside from tech issues, BAT fell as plans for its US unit Brown
Williamson to sell cigarettes over the phone encountered obstacles
in the shape of the influential World Health Organisation –
shares were 11-1/2 pence off at 452-1/2 pence. BAA shed 21-1/2
pence at 552-1/2 pence on fears that the escalating tensions
in the Middle East could deter passengers from flying, while
Kingfisher fell 13 pence to 355 pence as the Home Depot warning
damaged sector sentiment and dashed bid hopes.
Oil stocks, which had staged a strong recovery continued to
succumb to profit-taking as the crude price eased slightly and
analysts continued to agonise about their valuations –
BP Amoco shed 12 pence to 634-1/2 pence, while Shell lost 15
pence to 596 pence.
However, other defensive stocks continued to benefit from the
escalating Middle East tensions: PowerGen took on 20-1/2 pence
at 530 pence, Barclays firmed 79 pence at 1,770 pence, P&O
gained 17 pence at 581 pence, and United Utilities added 15
pence at 685 pence.
Carlton Communications rallied 42 pence to 510 pence as Commerzbank
highlighted its attractions, topping the blue chip risers. EMAP
rose 21 pence to 801 as the same bank repeated its “buy”
advice, and with talk the firm has withdrawn from the bidding
auction for US magazines group Times-Mirror.
Vodafone Group also bounced back, adding 20-3/4 pence at 257-3/4
pence as analysts said it looked “cheap” – JP
Morgan repeated its “buy” recommendation. Reports
also suggested the firm is close to a multi-million Pound deal
to buy around 50 shops from Box Clever, a joint venture between
Granada Media and Nomura-owned Radio Rentals.
Marks & Spencer also rallied after a recent fall back to
10 year lows, adding 5-3/4 pence at 176-3/4 pence as newspapers
highlighted break-up possibilities. Among the mid cap gainers,
Eidos was boosted to the top of the index by a fresh batch of
speculative interest following the recent collapse of bid talks
– gaining 32 pence at 292 pence, while Innogy Holdings
continued to stand out, putting on 20 pence at 206 pence as
CSFB rated the stock a “buy” with a 288 pence price
target.
House of Fraser
When reporting its half-year results to 29 July, House of Fraser
announced that there were further increases in market share,
sales growth in both Home and Fashion, and a very encouraging
start to the second half. Gross profit margin was maintained
at 32.9 per cent. Growth in like-for-like sales has continued
strongly during the second half with a 9.5 per cent increase
achieved in the first six weeks of the period.
The increase in the first half loss was attributed to changes
in accounting policies, amounting to £0.9 million, and
a further £3.5 million from disruption at Oxford Street
and Guildford stores while they undergo major redevelopment
and refurbishment. During the first half, there has again been
tight management control of the costs, with only a 1.7 per cent
increase in the underlying cost base, the full reported increase
being attributable to new stores and the rents associated with
BL Fraser.
During the first half, two accounting statutes have come into
force that have impacted the results. Following the introduction
of Financial Reporting Standard 15, companies must now depreciate
freehold buildings and long leasehold properties. Urgent Issues
Task Force 24 has meant that pre-opening or set-up costs can
no longer be matched against the profits of a store or project
once it is operational but must be expensed as incurred.
During the half-year, like for like sales of Fashion were driven
forward by 5.9 per cent with significant market share growth.
This growth has benefited significantly from the allocation
and replenishment tools put in last May, as part of the completion
of the supply chain project, together with the continued introduction
of new exciting brands and the further rollout of successful
brands through the chain.
New brands introduced include Fornarina, Evisu, Blue Marlin,
Itsus and Miss Sixty in womenswear, Burberry accessories and
Creme de la Mer cosmetics. During the period there have been
further rollouts of Max Mara, French Connection, Paul Smith,
Armani Jeans and Bobby Brown cosmetics. Strong performance was
also recorded by the group’s private label brands: Linea,
Platinum, Fraser and Essentials. Further brand extension has
taken place with the launch of Linea Petites and Linea Home.
The group’s two new stores at Bluewater and Reading have
traded very strongly during the half, significantly out performing
the group’s investment criteria. Further new stores in
the City of London (opening 2002) and Norwich (2004) were signed
up in the period, joining High Wycombe (2003) and the re-sited
Maidstone (2003). Together these new stores will create over
1,000 new jobs. In addition to these new stores, the first six
months have seen the first application of the additional funds
generated by the BL Fraser property deal last year.
The group is carrying out comprehensive redevelopment and refurbishment
of its Oxford Street and Guildford stores. These refurbishments
are due to be completed in October and November respectively,
when these key stores will then trade from significantly enhanced
and enlarged premises and be able to fulfil their full potential
for the first time. The group is also currently refurbishing
the ground floor of its Manchester flagship store, Kendals,
and the ground and the lower ground floor of Howells in Cardiff.
These will be completed in November. These refurbishments represent
10 per cent of the group’s trading space.
The group is trialing a customer relationship management initiative.
As the first part of that initiative the group launched a customer
incentive scheme on 6 April in eight stores. Information collected
on shopping behaviour will be used to improve merchandise ranging
and store layout. To date the trial is going very well. During
the first five months, 330,000 customers registered for the
“recognition” scheme versus the group’s target
of 300,000 for the first six months. The average transaction
value of “recognition” customers has been 30 per cent
higher than that of non recognition customers. Additionally,
the trial was rolled out to a further four stores at the beginning
of September in order to test predictions of sales uplift and
customer recruitment based on those achieved by the first eight
stores.
Bank of Scotland
Bank of Scotland reported that it is growing its corporate banking
market share in England and remaining the UK’s leading
provider of acquisition finance. With innovative responses to
customers’ needs, the corporate banking division is the
banker of choice to an ever growing number of companies and
entrepreneurs.
Bank of Scotland is establishing a strategic partnership with
IBM, in one of the biggest arrangements of its kind in Europe,
to outsource the Group’s IT operations. Nineteen other
outsourcing or co-sourcing agreements in place enabling management
to concentrate on core businesses. These are expected to lead
to substantial cost savings.
Personal Banking continues to pursue a growth strategy through
new products including stakeholder pensions, flexible mortgages
and car purchase schemes; New services, including wealth management
through “in Parallel solutions”; New distribution
channels, such as e-commerce and mobile phone banking.
The Bank of Scotland brand is associated with trust, integrity
and innovation, virtues which provide an ideal anchor for a
banking relationship. This brand value will be harnessed in
the continuing expansion in England, through workplace banking
and direct marketing. This own-brand growth will be enhanced
by alliances with other major UK brands to offer financial services
through more channels, such as the leisure industry, retailers
and internet sites.
Through a number of initiatives, such as the link with BT to
provide the first “one stop shop” for total business
solutions online, the Free Banking for Life SME Direct Scheme
and Business Centre openings in Cambridge and Harrow, Business
Banking aims to increase its share of the UK SME market, in
respect of both lending and deposit taking. Business Banking
fully recognises the significant opportunity that the internet
presents to the SME community.
Bank of Scotland has done well to lift market share to seven
per cent, and is expected to improve on that. Although margins
remain under pressure, Bank of Scotland is a likely candidate
to continue delivering the goods.
Please note that the value of investments can fall as well
as rise.
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