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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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Glass ceiling to growth threatens Gunners

Gloom sets in at the Emirates

Gloom sets in at the Emirates

On the face of it the business of football is in rude health at the Emirates. If anything, Arsenal’s financial performance has outpaced the on-pitch side of things with rising revenues, record match day income and a 25% hike in profits comparing favourably with four straight trophy-less seasons.

So, let the battle of the behind-the-scenes power brokers commence. Unlikely. Strange as it sounds fans have much in common with potential investors since past league and cup successes in football, just like yesterday’s profits in financial markets, should be regarded as no guide to future performance. Buying a stake in the club relies on optimistic assumptions on the clubs ability to continue to generate hefty hikes in profitability and cashflows in the years to come, yet evidence of such potential remains thin on the ground.

For a start, headline revenues have been boosted by the improbable sale of 208 plush apartments at Highbury Square, the clubs listed former stadium. Second, having stripped out this one-off gain, the resulting single-digit growth in overall income was largely because the club played more games than the year before, thanks to semi-finals in both the FA Cup and money-laden Champions League. Combined with a fourth-placed Premier League finish, the chances of significantly bettering this playing performance either this season or in years to come must be considered unlikely.

Also providing a significant cap to future performance is the fact that match day income growth offers very limited upside based on the dubious chances of stadium expansion while the club remains debt laden from building the thing, while season ticket prices are already just about the most expensive in the league.

Yet, like at football clubs across Europe, wage inflation continues to haunt the Arsenal bean counters. Players salaries rose from 101.3 million a year ago to £104 million last year. If this 3% increase seems modest, remember that player wages, for the time being at least, face none of the glass ceilings that the income side of the business does. And imagine what two or three big name signings would do to the figures.

Highbury Square offers best financial bet on Arsenal

Highbury Square offers best financial bet on Arsenal

The club has been supposedly ‘in play’ ever since American sports entrepreneur Stan Kroenke and Uzbek billionaire Alisher Usmanov bought significant stakes in the club. The pair now own 53% between them. But football does not operate in a bubble immune from normal economic pressures.

Arsenal are currently valued at £470 million on the Plus Markets exchange and still burdened by close to £300 million of borrowings, a very full price for even the most frivolous billionaire. They’d be better off buying one of clubs 210 still for-sale flats at Highbury Square, at least their value has fallen in line with the real world.

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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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