Wednesday’s Master Investor Market Report featuring Tesco, Punch Taverns, Tate & Lyle and Ladbrokes

• Bank of England minutes have shown that the decision to keep interest rates at 0.5% this month was unanimous, but the notes contained a comment that a pair of “hawks” were on the edge of voting for a rise which some in the City are reading as a suggestion that a tighter monetary policy may be considered in the near future, despite the Eurozone’s woes and weak wage growth. However, HSBC UK Economist Simon Wells said that no changes would be made soon due to the upcoming election and potential coalition discussions.
• Navinder Singh Sarao, a UK-based futures trader, has been arrested in London in connection with the 2010 Flash Crash that saw the biggest intra-day decline in Wall Street trading history. Mr Sarao made over $40 million (£26.6 million) in profits from the event and has been accused of using over $200 million (£133 million) of cancelled orders to “spoof” high frequency trading algorithms. He now faces extradition to the US and bail was set at £5.1 million in Westminster Magistrates Court this afternoon.
• The FTSE 100 closed down by 34.69 points at 7,028.24 points; the FTSE 250 fell by 77.00 points to 17,635.55; the FTSE All Share ended the day at 3,795.36 points, a decline of 18.04 points; and the FTSE AIM All Share shrank by 1.43 points to 749.51 points.

Supermarket chain Tesco (TSCO) reported record losses of £6.4 billion for the year ended 28th February, as price competition ate into margins and the company’s property portfolio was severely impaired. The firm closed 43 unprofitable stores earlier this month, as well as improving stock routines and management by restricting capital expenditures to £1 billion for the current financial year. The board are focused on regaining competitiveness in the UK and rebuilding the balance sheet. Analysts’ view were largely negative, but house broker Deutsche Bank said that “while there are arguably a few more downward pressures than upward pressures, we don’t expect 2015/16 consensus numbers to move materially on these results. The confirmation of an agreed funding plan for the pension deficit, which isn’t materially more onerous than our current forecasts, is a positive“. The shares fell by 12.1p to 222.65p.

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Pub and bar operator Punch Taverns (PUB) reduced its net debt by £53 million during the 28 weeks ended 7th March, as the group’s disposal plan proceeded ahead of schedule. Revenues for the period dropped by 5% to £221.7 million, but the firm’s pre-tax profits were £348.5 million relative to a loss of £174.9 million in the prior year. Sector analysts expect conditions to worsen following the general election as new regulation is set to be introduced, but Numis issued a “buy” rating on the stock. The shares rose by 1.63p to 105p.

Sugar and sweetener specialist Tate & Lyle (TATE) announced a major restructuring plan that will see it exit the majority of its European Bulk Ingredients Business and refocus its SPLENDA arm to maximise returns. The company will dispose of its joint venture share in bulk-focused plants in Bulgaria, Hungary and Turkey in exchange for full ownership of the more speciality-focused facility in Slovakia and €240 million (£171.4 million) in cash. Tate & Lyle will also shutter a Singapore factory next year. Jefferies Analyst Martin Deboo said that the “heart tells us that all this should be a positive this morning. Head suggests a more demanding vista. New pro-forma earnings per share implies a 2016 PE of 18.5 times at the current share price. This compares to 16.3 times for Tate now. Below speciality food ingredients aristocrats like DSM (19.8 times), Kerry (21.5 times), Givaudan (25.9 times) and Chr. Hansen (35.5 times). But well above the peer that Tate most closely resembles, Ingredion, on a lowly 13.5 times“. The shares closed at 608.5p, down by 34p.

Bookmaker Ladbrokes (LAD) recorded a 3.3% increase in group net revenues in the 3 months ended 31st March, but quarterly EBIT dropped by 22.3% to £14.3 million as the UK raised Machine Games Duty and the company’s exit from unregulated online markets in accordance with Gambling Commission guidelines. Sporting results were also more customer friendly than in the comparative period, which significantly impacted margins. Greg Johnson from Shore Capital said that “overall, we are pleased with the continued progress underlying although unfavourable sporting results are likely to put pressure on full year pretax profit estimates of £72m (earnings per share 7.0p), with the first quarter some £10m shy on a quarterly run rate. We have a roadmap to 18-20p of earnings on a fully recovered basis. However, many uncertainties remain; notably execution, regulation and the dividend. We retain a hold until some of these clouds clear”. Ladbrokes shares declined by 3.4p to 102.7p.

Tomorrow’s News Today

Meggitt (MGGT), WPP (WPP), William Hill (WMH) and Taylor Wimpey (TW.) will be among the
firms publishing updates and results tomorrow morning. A plethora of firms will go ex-dividend, including Old Mutual (OML), Antofagasta (ANTO), Man Group (EMG) and Glencore (GLEN).

On the macroeconomic side, UK retail sales figures and public finances data will be released by the Office for National Statistics. Additionally, US unemployment figures will be published.

Quote of the day

“The beginning is the most important part of the work.”
― Plato