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Best ever quarterly gain for Footsie

Today in the market

Today in the market

Market Moves
techMARK 1,488.10 -0.19%
FTSE 100 5,133.90 -0.50%
FTSE 250 9,142.31 -0.79%

Wall Street fell out of bed at the start of its trading day after the release of disappointing business activity data and London quickly followed the US market downwards. However, a rally in the last half hour ensured that the FTSE 100 enjoyed its best ever quarterly percentage gain since the index was established in 1984.

Travel companies TUI Travel and Thomas Cook were in the shade after the latter’s underwhelming trading update this morning. The company said that the trend to later bookings continues but ‘consumers are still going on their holidays.’

Fashion and food retailer Marks & Spencer posted a 0.5% fall in like-for-like sales in the 13 weeks to 26 September as recession-hit shoppers stayed frugal. Chairman Sir Stuart Rose said he remains cautious on the company’s outlook and expects 2010 to be a tough year.

M&S shares fell back, taking sector peer Next with them. In what may not be an entirely coincidental piece of timing, George Davies, the founder of Next and the mastermind behind Marks & Spencer’s successful Per Una clothing line, launched a new clothing label today, GIVe. Davies plans to open 25 stores selling the new clothes line.

Hedge fund manger Man was the best performer after a bullish trading update. “Investor sentiment is continuing to improve across the industry, the performance outlook is healthy and the prospects for sustained industry inflows are very promising,” chief executive Peter Clarke said.

Airport scanning machine maker Smiths was also wanted despite pre-tax profits dipping to £371m from £380m in the year to July on sales up 7% to £2.67bn. The figures were a little better than forecasts, while it held the dividend.

Shares in Dairy Milk maker Cadbury were barely changed after the Takeover Panel gave US potential bidder Kraft Foods until 5pm on 9 November to make a bid for the UK confectionery company or walk away for at least six months.

Insurers remained in favour, buoyed by persistent rumours of sector consolidation, though Deutsche Bank has poured cold water on suggestions that investment vehicle Resolution will bid for Legal & General; nevertheless, the German bank upgraded the stock to ‘hold’ from ‘sell’ and also suggested that sector peers Aviva and Old Mutual are underpriced.

Support services specialist Babcock has lost its contract with Network Rail for High Output Track Renewal operations, but trading overall is as expected. Network Rail told it today that its Babcock SB Rail joint venture with Swietelsky Baugesellschaft had lost the contract, it said.

Travis Perkins, the leading UK builders’ merchant, said sales trends for the last three months are ahead of expectations but its current market consensus for 2010 remains unchanged. The group said turnover for the nine months to the end of September is down 11%. Its larger rival, Wolseley, joined Travis Perkins on the upturn.

haysRecruiter Hays Group is marked down after being named by the Office of Fair Trading as one of six recruitment agencies involved in a price-fixing cartel.

Care group Care UK could be on the end of a management buy-out after private equity firm Bridgepoint confirmed this morning it was in talks.

Online clothes retailer ASOS results to date are in line with management’s expectations and it expects the first half outcome to be marginally ahead of the prior year. Sales are up 47% for the 6 months to 30 September 2009, with international sales rising 110% for the period, which represents around 25% of total sales.

Greyhound bus operator FirstGroup said overall trading remains in line with management expectations but warned the transport industry faces a challenging year ahead. The shares shifted into reverse, along with sector peers Go-Ahead and Stagecoach.

Like for like revenues eased in the three months to end-August at financial services and healthcare software provider Misys, but order intake was strong. On a pro-forma like for like basis, which excludes the effect of currency movements and adjusts for the acquisition of Allscripts, group revenues declined by 2% in the three months to 31 August, while adjusted operating profit rose by more than 15%.
market down
Neuropharm, the pharmaceutical company focused on neurodevelopmental disorders, saw its pre-tax loss widen to £6.5m in the year to 30 June 2009 from £4.9m the year before. The company has no revenue.

Insolvency consultant Sterling Green swung into profit in the second half of the year due to a combination of reduced costs and increased revenues, but still posted a loss of £321,000 overall. The working capital position remains challenging, it added.

FTSE 100 – Risers
Man Group (EMG) 331.20p +7.50%
Legal & General Group (LGEN) 87.80p +6.10%
Smiths Group (SMIN) 888.50p +6.03%
Aviva (AV.) 448.10p +3.92%
Wolseley (WOS) 1,507.00p +3.79%

FTSE 100 – Fallers
TUI Travel (TT.) 254.60p -4.29%
Liberty International (LII) 480.00p -3.94%
Thomas Cook Group (TCG) 232.30p -3.53%
Marks & Spencer Group (MKS) 362.10p -3.39%
Next (NXT) 1,792.00p -3.14%

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ITV has dropped the Ball

ITV's Boardroom blunder

ITV's Boardroom blunder

ITV has dropped a huge clanger by not appointing former Sky boss Tony Ball as its new chief exec. Yes, his reported £30 million pay and incentives package does seem at odds with the current belt-tightened business environment, and yes, his ‘Millwall school of management’ was always controversial and cost him friends in high places. Ball’s apparent demands to hand pick the next non-executive chairman of ITV – to replace outgoing exec chairman Sir Michael Grade – may have put a little too muc power in his back pocket.

Yet Ball’s days at Sky are fondly remembered in the City. Under his four-year leadership Sky, 39.1% owned by Rupert Murdoch’s News Corporation, doubled its subscriber numbers to seven million and became the leading player in commercial television, largely thanks to his policy of exclusive rights to increasingly popular Premier League. And crucially, Ball remains among the few calibre candidates capable of addressing ITV’s biggest problem – reducing the broadcaster’s reliance on advertising revenue. That challenge still remains but whoever the eventual appointment is, they’ll need to rely on more than X-factor to turn ITV’s fortunes around.

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Cadbury’s independence crunch time

Cadbury's Crunchie time

Cadbury's Crunchie time

The independence and identity of yet another British firm is being threatened by an overseas predator as Cadbury fights off the advances of US giant Kraft. On the one hand it is reassuring to celebrate the best of British, be it in sport, food or industry. Yet the economics behind insisting that British factories remain British-owned are not overwhelming.

This sort of nationalistic flag waving might deliver a bit extra tax revenue for the treasury, it might produce a handful of trade spin-offs on the assumption that British businesses may favour working with other British businesses. Yet there are also strong counter-arguments, such as securing vital access to overseas markets through a well-placed overseas parent.

National boundaries have been blurred by free market enterprise with investors able to mop-up profits earned on the other side of the world, yet when push comes to shove, if someone offers to buy a company for significantly more than that company is likely to be priced on the market in any foreseeable future, investors would be mad to turn that down.

Yet it remains unclear that this is what Kraft has done. It’s £10 billion package does offer a cash element, but much of the deal would be financed by its own paper. This makes the deal on the table more difficult to value than a pure cash offer, and requires investors to swap a set of fundamentals with which they are familiar for another with which they are not. Turning that down would not be mad at all.

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Doomed to boom and bust

Global gathering in Pittsburgh

Global gathering in Pittsburgh

We were promised the end to boom and bust markets and today we’re told that the US wants to hand over a greater share of responsibility for the global economy to many of the emerging Asian powerhouses of the future. Decisions and policy, we’re led to believe, will in future be influenced to a greater extent by the G20 group of nations , including China and India, rather than just the US and a small select wealthy few European nations that constitute the G8.

Does this imply a huge step has been taken towards the new economic world order that was promised by many commentators a year ago in the wake of the damaging collapse of Lehman Brothers and the multi-billion dollar rescue of Merrill Lynch and insurance firm AIG? Some think so. According to Fareed Zakaria, editor of Newsweek International and author of The Post American World, ‘This is the major power shift of the last few centuries,’ he says, speaking to the BBC World Service. ‘For the first time in at least 300 years, you have non-Western actors of a size and scale that will really be dominating the world.’

Yet the obvious new significant player in this stage show is, of course, China. Its emergence as a genuinely new global powerhouse has been in evidence for several years thanks to its vast and cheap labour force. The IMF predicted in February that China’s GDP growth could exceed 6% this year, not quite the double-digit expansion previously witnessed but impressive all the same against the belt-tightening economic backcloth. But a victory for the communist model? Such claims would have Marx and Mao spluttering their party members’ coffee since China remains hopelessly committed to emulating the western capitalist, or Wall Street, model that got us into this mess. The world’s four biggest banks are now all Chinese yet they are also all quoted on the Beijing stock market and operate to the beat of an increasingly western drum.

Inevitable boom and bust

Inevitable boom and bust

The problems that lay at the heart of the global financial and economic collapse are systematic and it will take far more than the introduction of a few stiffened regulations to avoid inevitable repeats. Markets are fundamentally cyclical which means individuals and organisations alike are incentivised to milk the good times while they can. But markets are not the only cyclical factors – businesses, regulators, government and investor mood is too. And just as soon as a sustained up turn is in evidence you can bet your bottom dollar that the cries to loosen the red-tape burden will be loud and wide as business attempts to maximise it position, please investors and line its pockets. This breeds a short-termism and a greed that is as understandable as it is unavoidable, where bubbles balloon on waves of market euphoria only to explode into a recessionary bloodbath.

Former Fed chief Alan Greenspan recently admitted, another financial collapse will happen… it won’t be the same as this one, history never repeats itself exactly, but it will happen. So while regulators, bankers and government desperately fiddle with one lot of parts of the global financial engine in the hope of avoiding a repeat performance, so another future disaster develops in a different part of the machinery.

Market economics is far from perfect and cyclical booms and busts remains the norm, not the exception. Finding a better system remains the challenge but it would be a start for the decisions makers to dig a little deeper for genuine answers rather than merely patching the holes that sank the ship last time round. Until they do, boom and bust will remain as certain as Benjamin Franklin’s death and taxes.

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Water: the future of liquid assets

Clean water running dry

Clean water running dry

Take any commodity and it can be replaced with something cheaper or greener with a bit of imagination, investment and technical savvy. Plastic pipes are replacing expensive copper ones; wave, wind and sun provide energy in place of coal-fired power stations; corn-based ethanol and fuel cells instead of petrol. Costs may not be immediately comparable, but the invisible hand of the market should address any imbalance in time. Yet arguably the world’s most vital commodity we all take for granted every single day… water.

Water is different since there is no replacement regardless of price yet bizarrely it remains one of the cheapest, in relative terms. Around the world the price of water is usually lower than the cost of providing it.
We are familiar with the investment implications of the imbalance between supply and demand of commodities but the investment case for water-related businesses is even more compelling. On the demand side, population growth is a major problem. It took 10,000 years for the world’s population to grow to one billion, 150 years to double to two billion and in the past 60 years it has risen to three-times that. The global population could be eight billion by 2050.

That increase would be bad enough, but each of us is also using a great deal more water. In America the population has grown roughly 50% in 30 years but its water use has tripled. Other problems include the uneven distribution of water around the world. China, for example, accounts for a fifth of the world’s population but it has just 7% of its renewable water supplies, according to US-based investment manager Summit. Only 10 countries account for 60% of the world’s fresh water.

A huge investment theme to tap

A huge investment theme to tap

Lack of investment in water supply networks is also a huge problem, in both the developed and developing world. About a fifth of the world’s population does not have adequate supplies of drinking water, many more do not even have basic sanitation. Summit believes infrastructure needs in the US alone could cost up to $1,000 billion over the next 20 years.

Put together constrained supply and booming demand and you have the basis for the world’s most compelling long-term investment themes, yet amazingly, it remains a distinctly under-appreciated. Summit’s analysis of the industry and share prices returns shows US water stocks delivered a total return, including re-invested dividends, of over 380% in the 10 years between 1996 and 2006, roughly three-times that of the Dow Jones index. The UK’s own water sector also performed strongly over the same period (although a 2002 UK stock market reshuffle makes direct comparisons difficult). More recently water industry share prices have collapsed in line with the vast majority of UK share prices in spite of their long-term earnings visibility and reliable dividends.

But rather than cherishing this most valuable commodity it is, according to Summit, being allowed to dribble through our fingers at a worrying rate thanks to surface pollution and using ground water supplies faster than they can replenish themselves. Summit reckons overall water levels in China are falling by roughly three metres a year. Basic supply and demand economics have had far reaching effects on most commodities over the past few years, and while there may never be a direct market for water trading, the water industry could easily turn into among the best long-term investment themes yet.

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