Proactive Investors -
- FTSE 100 edges higher, up 9 points at 7,266
- BT (LON:BT) chief executive Philip Jansen to step down
- Utilities bounce after Thames Water funding boost
DWF soars on bid approach
On a quiet news day, investors in DWF Group PLC (LON:DWF) got a welcome boost with shares soaring 37% after it confirmed it had received a bid approach from Inflexion Private Equity Partners LLP.
The Manchester-based legal business said the potential offer would be for a total consideration of 100p per share, comprising 97p in cash and a 3p special dividend for the six months to April 30.
DWF was responding to media speculation regarding a potential offer.
Should a firm offer on such terms be made by Inflexion, DWF said it would be "minded to unanimously recommend" it to its shareholders.
Under UK takeover rules, Inflexion has until August 7 to announce a firm intention to make an offer or state that it does not intend to make a bid.
Deflation looms in China as recovery falters
China’s consumer price inflation flatlined in June and wholesale prices tumbled adding to fears that the world’s second-largest economy is on the brink of heading into deflation.
The consumer price index was flat year on year and declined 0.2% compared with the previous month, while factory gate prices fell at the fastest pace since 2016 as demand for consumer and manufactured products softened.
China’s producer prices fell by 5.4%, the fastest decline in more than seven years and an acceleration from the 4.6% dip in May.
The figures added to calls for the Chinese authorities to launch a stronger stimulus package to sustain the country’s faltering post-Covid recovery.
Susannah Streeter at Hargreaves Lansdown (LON:HRGV) said: “’The continued loss of power in the Chinese economy is concerning investors, with consumer prices flatlining.”
“While inflation shows signs of stubbornness in other economies, disinflationary forces are at work in China, which risk tipping the world’s second largest economy into a deflation scenario. “
Neil Wilson at markets.com said: “This soft data would tend to suggest the central bank will cut rates again and could see further stimulus from Beijing.”
Back in London, and the FTSE 100 is meandering along, up 11 points.
Boohoo and Revolution Beauty row to escalate
The spat between Boohoo and Revolution Beauty, the AIM-listed retailer, is poised to intensify with a complaint to the junior stock market regulator, according to Sky.
Sky said Boohoo is drafting a letter to the AIM regulatory authorities demanding that Revolution clarifies an earlier stock exchange announcement that the online clothing retailer had obstructed efforts to finalise its accounts.
Boohoo also plans to seek assurances that voting decisions at a forthcoming Revolution Beauty EGM are upheld and not subsequently overturned, according to people close to the situation.
Insiders said Boohoo was considering requisitioning a second extraordinary general meeting in the coming days to remove additional Revolution directors and appoint more independent board members.
The battle between the two companies has been raging for weeks as Boohoo, which owns a 26.6% stake in Revolution, has sought to reshape its board.
Thames Water finances patched up but risks remain
Susannah Streeter at Hargreaves Lansdown describes the £750mln cash injection into Thames Water as "an emergency pumping operation, rather than shoring up Thames Water’s finances for the longer-term."
"The sum agreed to be paid is less than the £1bn Thames Water said it initially needed, so there is a shortfall in financial lifeline," she pointed out.
"In addition, the investors will be staring at the huge bill for the infrastructure work needed to mend the leaks and sewage discharges which the company keeps being fined for," she noted.
She explained Thames is a casualty of the rapid escalation of interest rates but is also suffering because it was "stripped of a cash float which should have protected it when monetary tides turned."
"Its profits were siphoned off in the good times, rather than being used to build up a bulwark for when borrowing costs surged back upwards," she added.
Thames Water’s debt amounts to roughly £14bn or around 80% of the value of its business.
Streeter pointed out while publicly listed companies are not in such deep debt waters, the next regulatory timeframe is looming and there is set to be much bigger demands from regulators on infrastructure improvements to reduce sewage spills, increase capacity, and meet net zero targets.
"Capital expenditure will have to increase sharply as a result – United Utilities, Severn Trent (LON:SVT) and Pennon (LON:PNN) have already had to push up spending, but budgets will need to expand, and debt levels are set to rise," she thinks.
She reckons margins could come under pressure and cashflows squeezed.
But she also noted longer term, high levels of inflation are likely to be a net benefit for a lot of water companies.
"That's because inflation increases the amount of revenue the group's allowed to earn on its assets, which cushions the impact of rising costs."
"But, right now, it’s proving to be a big drain on resources.’’