Companies in the news ... and how they were assessed
Capita: Brexit delays bite
The outsourcing behemoth Capita became the latest support services stalwart to pay the price for what its chief executive called a “significant downturn in expectations”, said The Guardian. The company announced that full-year profits would be between £60m and £80m below the £614m it guided the market to anticipate as recently as July. Revenue growth will come in at just a quarter of the 4% rate predicted. Shares plunged 28% in a single day – a nearidentical drop to that suffered by Mitie a week earlier after it also warned of below-par profits. Capita echoed its rival in warning that Brexit jitters are causing “delays” to clients signing off new business contracts; in addition, it had to pay a charge of up to £25m related to a mess it made implementing a new IT system to administer the London congestion charge. Capita’s boss Andy Parker “has his work cut out”, said Alistair Osborne in The Times. A new chairman is coming in January and Capita’s shares are now at least 450p below where they were two years ago when Parker took over; if matters don’t improve, Parker may well be the new broom’s “first big decision”.
British Steel: showing its mettle
Only 100 days after its rebirth, British Steel has “already reached profitability”, said Tom Ough in The Daily Telegraph. Chief executive Roland Junck, former boss of steel giant Arcelormittal, reckons it could eventually turn a profit of more than £150m a year. New owner Greybull Capital formed the company when it acquired Tata Steel’s long products arm (railway steel and the like), comprising blast furnaces in Scunthorpe and plants in the Northeast and in northern France, for a nominal £1 in April. Back then they were losing up to £10m a month, so how has the turnaround come about? “There is no magic, it is just industry,” said Junck, who criticised the previous management. “We give more attention to the business,” he said. Cost-cutting that saw pay slashed by 3% and the closure of final salary pensions will no doubt have contributed; but British Steel has also announced a £50m annual investment programme and taken on 270 people. Junck sees the UK’S exit from the EU as a risk, said The Times, and said the firm’s full potential would only be realised if the Government supported the sector by lowering business rates and energy bills. “What we are asking for is this famous British phrase of a level playing field that will help us fight in European markets,” said Junck.
Tesco: shareholder action
Britain’s largest supermarket, Tesco, is to face its “first collective lawsuit” in the UK, said the FT, as the fallout continues from the accounting scandal that came to light in 2014. Bentham Europe, which provides funding for legal actions in return for a share of any payout, began “soliciting angry shareholders” two months after Tesco admitted it had overstated profits by as much as £263m, said The Guardian. It will launch its claim in the High Court later this month. Around 60 institutional investors, including hedge funds and pension funds, are currently involved, but Bentham said this is only the “first wave”. The investors are seeking to recover around £150m in alleged losses incurred when £2bn was wiped off the company’s value, on the basis that had profits not been overstated they might not have invested in the first place. For the case to succeed the investors will need to prove “dishonesty at director level”, which will be tricky, but is helped by the fact that the Serious Fraud Office has charged three former Tesco executives with fraud.
Henderson/janus Capital: active response
London-based fund manager Henderson Group has announced a £5bn tie-up with US rival Janus Capital in what it hopes will “be a shortcut to global expansion”, said The Daily Telegraph. Henderson will pay around £2bn to buy its smaller peer, creating an asset management giant with $320bn under management. By opening up sales of Henderson’s products to a largely untapped US market – and vice versa for Janus – the companies expect to boost revenues by 2-3%. “Some analysts questioned those projections,” said The Wall Street Journal. They will have to stem a steady trickle of outflows from their active fund managers to passive alternatives that simply track the market for minimal fees. Henderson investors withdrew a net £2bn in the first half of the year, while Janus lost around $200m. The combined group will be called Janus Henderson and will be headquartered in London – but it will give up its London listing in favour of New York and Sydney. It will also have “two public faces”, with the firms’ current bosses, Andrew Formica and Dick Weil, sharing a dual chief executive role.