Investments

Interest Rates Update: Sticking To 0.5%?

For 27 months interest rates have been at 0.5%. Analysts are expecting a rate rise soon, but most feel that the country is not ready for one yet. We will know later on.

The Telegraph business reporters say that the Bank of England are likely to keep rates low, and they are usually spot on the money.

A rise in interest rates will hurt many households as well as businesses which are still struggling. In a week when the health care industry is officially failing with closures of nursing home and new increases in the energy sector (Scottish power increasing prices by 19%), along with reports that food bills have increased by 5% in the last year and petrol increased by around 15%, an interest rate rise will probably cause more harm than good.

Glencore Internal Stock Price Drops After IPO

The other IPO this week was Glencore International (GLEN.L). It was slightly overshadowed by the hype surrounding the Linkedin IPO.

Glencore International is a commodities producer and marketer. Glencore operates mines and processing plants. It was founded in 1974 and its HQ is located in Switzerland.

The IPO was set to raise £6.8 billion on the London and Hong Kong markets and is due to be the biggest IPO of 2011.

Glencore International was the world’s 6th largest company in terms of turnover. Glencore supplies metals, minerals, oil and coal products as well as being involved in agricultural, automotive and power generation. It employs over 50,000 people globally.

Considering that the commodity markets are looking confident at the moment Glencore’s early trading figures are looking rather sluggish.

Glencore Share Prices Drops

Glencore IPO valued the shares at 530p which is the mid-point of the 480-580p range that Glencore originally set. They began conditional trading* yesterday (19th May 2011) at 547p. However today they dropped back to 530p as traders and fund managers are uncertain over the true value of the stock. By lunchtime Glencore had dropped further to 525p.

Glencore’s market value means that it will go straight into the FTSE100 index.

Glasenberg and other existing shareholders will control about 80 percent of the company after listing (Reuters).

*conditional trading refers to the trading of new shares before they officially enter the stock exchange.

Mothercare Closing Down Stores Across the UK

April 2012 Update

One year on from our first news of Mothercare closing down stores, Mothercare has announced new plans to close more stores.

36 more Mothercare branches and also 75 Early Learning Centres will close down over the next 3 years with 730 jobs at risk.

International sales continues to grow with over 1000 stores globally.

May 2011 News

Mothercare has announced it plans to close 1 in 4 of its UK stores over the next 2 years. Mothercare has had 2 hard years in a row caused by falling demand and increased competition for its goods.

Pre-tax profits have crashed by over 70%, with profits for 2010 reported at £8.8 million. The previous year saw profits of £32.5 million.

Mothercare have announced that they plan to close 107 of their 373 stores. Over the next 2 years 120 leases are due to expire so these are the stores which it will be closing down. Although these store closures will see many jobs lost Mothercare hopes that it will result in an addition £4-5 million profit per year.

It will mostly be closing down its High Street stores and keeping the larger out-of-town and retail park stores. Some towns such as Chelmsford have 2 Mothercare stores within walking distance of the town centre, is it likely that these are the types of store that will be closed first – although we have not had any confirmation regarding the Chelmsford store.

Bad Weather and Bad Christmas

Mothercare blame the bad weather and resulting bad Christmas sales for their most recent problems although there is an ever increasing amount of competition coming from online retailers which can provide goods direct to customers at discount prices.

International Success

It is not all doom and gloom though as Mothercare have seen their international business grow by 16.3% over the last year. This increased annual revenue by around $800 million. Mothercare are hoping to open 150 new stores globally over the next year.

Mothercare had warned the stock market that its profits were likely to fall short of previous expectations.

Mothercare Stock and Shares

MOTHERCARE (LSE: MTC.L Ticker: 906744 / ISIN: GB0009067447)

For latest prices see http://www.google.co.uk/finance?cid=668797

Falklands Oil Found by Desire Petroleum

Good news for some UK shareholders as Desire Petroleum have finally found oil in the Falklands. Ever since the British government defended the Falkland Islands in 1982 it was suspected that they were protecting more than just sheep farming. Some savvy investors bought shares in Desire Petroleum in response.

From the BBC:

A British exploration company says it has discovered oil off the Falkland Islands in the South Atlantic – the second such find this year.

Desire Petroleum said it would carry out further tests to assess the significance of the discovery.

It said it believed further oil fields would be found in the area.

Oil exploration around the Falklands has angered Argentina, which challenges British sovereignty over the islands it calls the Malvinas.”

Read the full story: www.bbc.co.uk/news/world-latin-america-11906367

BP Shares Plummet as Top Kill Fails to Stem Flow of Oil in the Gulf of Mexico

Bad news for UK shareholders today as BP’s share price started falling as concerns grew that it could take months before BP can control the oil leak in the seabed. As we feared last week pension plans and long term investment funds will be affected by the sudden downturn of this “safe” stock.

This disaster just goes to show that there really is no such thing as a safe stock at all. Any company can experience unexpected problems at any time, and once the main city traders start selling the shares go into free fall. It is usually the small private shareholders that are left in the worse position as by the time they make the decision to sell they have already lost so much.

Pension plans are going to suffer as dividends are reduced due to falling profits. The operation in the Gulf of Mexico continues to cost BP millions of pounds and some analysts believe it will be August before the leak is plugged.

Kraft Nears Victory in Cadbury Battle

cadbury2This morning, Cadbury’s board has advised shareholders to accept an improved offer from US food company Kraft.

The improved offer values Cadbury at £11.5bn, an increase of £1bn from the original offer made last November, and is worth 840 pence per share, with Cadbury shareholders also receiving a 10p dividend.

If the deal goes through, shareholders will receive 500p per share in cash, with the balance being paid in Kraft shares.

The deal has been struck at a price below thgat which was thought necessay, with some analysts expecting a bid of over 900p to secure the deal.

However, the threat of a counter-bid from US rival Hershey appears to have diminished, leaving the way clear for Kraft.

Private investors will need to consider any CGT implications from the forced encashment of part of their holding.

Also, individuals will need to consider whether or not they wish to hold shares in Kraft – as always with overseas holdings they will need to consider the impact of currency fluctuations (ie what is the outlook for the dollar) and probable higher dealing costs, as well as their views on the company, which is loading itself with £7bn in debt to help finance the deal.

Cadbury shares are currently trading at 838p, indicating a high degree of certainty that the deal will succeed.

British Banks Continue to Charge Excessive Overdraft Fees

A Court Ruling has overturned a previous decision to allow the Office of Fair Trading to investigate the fairness of charges for unauthorised overdrafts. Many people get stung for huge fees and interest rates when they go overdrawn without any agreement in place. The credit crunch and job losses have put many more people in the vulnerable position, and banks have been criticised for punishing many loyal customers at the time when they most need assistance.

It is estimated that banks make around £2.6 billion per year on these fees. The banks argue that the fees allow free banking for the majority of people, however, it is the people that can least afford to pay the fees that get charged. People that have stable jobs, a good income and a smaller mortgage have no trouble staying in the black, and yet they are the ones with free banking.

The credit crunch does not help matters as many banks have refused to lend people money leaving no option but to go overdrawn – the alternatives being to lose your home or business.

“The OFT will now consider the detail of this judgment before it makes a decision on whether or not to continue its investigation into unarranged overdraft charging terms. It will also explore with others the implications for consumers and for existing and future legislation and regulation.” The Office of Fair Trading, November 2009.

We recognise this issue has been of real concern to a large number of our customers and we are pleased that this decision now brings clarity for all parties. The banks will work with the regulators to ensure that the outstanding customer complaints are brought to a swift conclusion.”  The British Bankers Association

RBS Battles Enforced Break-Up

The beleaguered Royal Bank of Scotland has until the end of this week to agree an acceptable roadmap with both the UK Government and the European Commission.

Since taking on unprecedented Government support, CEO Stephen Hester has been battling to reconcile the interests of his shareholders and those of the Government and EC. 

williams and glynsIt has been known for some time that RBS would be likely to sell off over 300 RBS branches in England and NatWest branches in Scotland. 

This will be achieved by resurrecting the defunct Williams & Glyn’s brand and putting the resulting business on the market.

As we reported in September, Chancellor Alistair Darling wants any divestments by the bailed-out banks be sold to new entrants, in order to increase competition.

Tesco and Virgin are both likely to be interested in any retail banking business that becomes available via RBS, Lloyds or Northern Rock. 

Both companies are in the process of positioning themselves for full entry into the UK retail banking market – Tesco has just announced 1,000 new jobs in Newcastle in its Finance arm, while Virgin has applied to the FSA for a banking licence.

What is more worrying for Hester is the likley forced sale of its Insurance arm (home to household names such as Direct Line, Churchill and Green Flag) and/or the US bank Citizens.

citizensThe Insurance division had been up for grabs for a considerable time but was withdrawn from sale by Hester as an acceptable bid was not received.  A forced firesale of the business is likely to realise a smaller sum.

Citizens is seen as a core business by Hester.  RBS has built the brand by making a number of small, regional acquisitions over the years, and the business offers welcome diversity to the parent company.

However, EC competition commissioner Neelie Kroes may demand that RBS divest either or both of the businesses in order to justify the state aid it has recieved.

In an announcement to the stock exchange this morning, RBS confirmed that discussions were ongoing over the terms for participation the Government’s Asset Protection Scheme (APS) and the state aid measures demanded by the EC. 

In the release, RBS stated that “With respect to the EC, negotiations between HM Treasury and the EC are in their final stages and will include some divestments not initially contemplated.  It remains RBS’s goal that any required divestments do not threaten its recovery plan which is already underway.”

RBS will release their third quarter results on Friday 6th November, and has committed to announcing the outcome of talks with the Government and the EC by this date at the latest. 

The company has seen its shares slump back below 40p, falling by over a third since late-August, as uncertainty over its future continues to spook the City.

Friends Provident & Resolution – Update

Friends Provident shareholders have until Friday 30th October to return their forms to the company, stating whether they wish to accept the cash offer or shares in Resolution plc.

Shareholders can receive 79.4p for each FP share (up to the first 2500 shares in their holding) and 0.9 new Resolution shares for the remainder of their holding. 

Or, they can receive all shares, at the same rate of 0.9 Resolution shares per FP share.

So, a holder with 2000 FP shares will have the opportunity to take 1800 Resolution shares, or £1588.

A holder with 3000 shares will be able to take the maximum cash offer of £1985 (for 2500 shares) and 450 Resolution shares (with their remaining 500 FP shares).  Alternatively, they could opt for shares only, receiving 2700 Resolution shares.

What shareholders decide to do will vary, depending on their own set of circumstances.

Firstly, a shareholder will need to weigh up the potential of Resolution.  As a new player in the market, with the stated aim of consolidating the Life Assurance industry, there is little in the way of a relevant track record to look back upon, but there are ambitious plans for the future.  

As ever, diversification should be a key driver in the decision making process.  Is your portfolio of shares spread across a wide range of companies and industries, in order to mitigate risk?  Or do you have a strong view on a particular sector? 

Do you only hold FP shares after being awarded them after demutualization?  If so is direct equity investment a worthwhile venture – would you be better off in a managed fund or ETF if you want stock market exposure? 

Read our guide to ETF’s here.

If you think the market has come too far recently and is due a fall, maybe you want to hold cash.

Read our article on Cash ISAs here.

A key issue to be clear on regards shares held in nominee.  Most online stockbrokers will hold shares in nominee accounts (ie held in their name rather than yours).  They may have different deadlines to those published by Friends Provident (as they have to process many instructions from all of their clients who hold FP and advise the company in good time). 

If you do not hold the shares yourself in certificated form, make sure that you find out from your stockbroker what their deadlines are for this offer.

As ever, the only advice we offer is to research as thoroughly as you can, carefully consider all of your options and, if required, take independent financial advice.