Somerfield’s jumpy reaction came as other analysts and institutions expressed grave reservations about

General — July 20, 2010 at 13:57

Somerfield’s jumpy reaction came as other analysts and institutions expressed grave reservations about the chances of the company floating at a satisfactory valuation. Somerfield is hoping for a pounds 500m price tag when it floats.
Frank Davidson of James Capel had been invited to a visit of four stores in the Swindon and Gloucestershire area along with 14 other analysts on Thursday. Somerfield, the supermarket group which is planning a stock market flotation next month, banned a City analyst from a presentation and store visit this week after he wrote a negative circular on the company. Blue Circle said it had announced that Holborough was its preferred site at an early stage to enable further evaluation and the detailed site investigation required for an environmental assessment to be concluded.. He added that a 4 per cent increase in cement prices introduced in April was “sticking well” in the market.Blue Circle last rationalised its cement business in November 1992 in a move that cost 550 jobs, around a fifth of the then workforce.

It said at the time it was reducing capacity in response to expected lower demand for cement.The new restructuring, which takes place against continued uncertainty in the construction sector, is designed to exploit new efficiencies in distribution, working arrangements, plant reliability and savings in energy costs. Three more smaller plants will operate in niche markets and receive lower investment than main works.Mr McKenzie said that its overall capacity of around 7.5 million tonnes per year would be unchanged as a result of the restructuring. Ian McKenzie, chief executive, said: “We shall end up with a collection of core cement works that will be very efficient indeed in comparison with other producers in Europe.The consolidation is expected to cost 150 jobs in addition to the 1,300 the company warned were at risk from a proposed shake-up of the troubled heating division.Mr McKenzie said Blue Circle had “benchmarked” its performance against Europe’s other suppliers – which include Germany’s Heidelberger Zement and France’s Lafarge Coppee – and was aiming for a doubling of productivity in the long term.The seven works designated “core” by Blue Circle are located around Britain from south Wales to Northern Ireland and Scotland. Holborough will have a capacity of 1.4 million tonnes a year and is designed to protect Blue Circle’s share of the lucrative south-east cement market. The restructuring of Blue Circle Cement is the second big shake-up in the division in four years. Keith Orrell-Jones, chief executive, said: “The programmes we have agreed will ensure that Blue Circle Cement will be as competitive and efficient as any in Europe in the years to come.”
Analysts were sceptical of the company’s claim that it had identified cost savings worth pounds 50m a year, but they broadly welcomed the programme which involves the construction of a pounds 180m state-of-the-art cement works in Kent to serve the South-east market.The new site, probably at Holborough in the north of the county, will replace two existing sites at Northfleet on the Thames and one near Ipswich. Blue Circle launched a pounds 330m investment programme yesterday in a bid to become Europe’s most cost-efficient cement producer.

I anticipate that a substantial majority will wish to accept, although a minority of names will feel it is not good enough.”David Rowland, Lloyd’s chairman, in a letter to names accompanying a detailed information package, said he deeply regretted the events that had made the reconstruction plan necessary.”A very supportive, very encouraging response from the members,” was how a Lloyd’s spokesman described a meeting of 400 Australian names with deputy chairman John Stace this week.Before taking their funds at Lloyd’s into account, 12,000 names will receive a release from additional payments, 6,800 will have a bill of no more than pounds 25,000 pounds, 4,100 will have to pay pounds 25,000-pounds 50,000,while 3,600 will have to pay pounds 50,000-pounds 75,000.. If that happened, names and their estates would have full liability to their policyholders, and mechanisms for debt collection would “operate with full force”.British names’ representatives welcomed the improved offer and said it was likely to receive a positive response. There is a wave of opposition by names’ action groups to attempts to change the deal at an extraordinary meeting of members next month.One of the harshest critics, Christopher Stockwell, of the Lloyd’s Names Associations’ Working Party, which called the EGM, said: “What we have got is a big improvement on the offer that was made initially.”This is a way that gives us a solution now. But as it sent out letters and documents detailing the final settlement for all 34,000 members of the market – who will receive their individual statements over the next few days – Lloyd’s insisted it was optimistic that the 2,700 American names could be brought into the deal.
The letters began the last stage of plans to rescue Lloyd’s and put it on a sound footing, with a deadline of 28 August now set for the rescue package to be accepted by the market’s members.The settlement offer said among the difficulties in the US were legal claims being made that the establishment of Equitas, the reinsurance vehicle into which the market’s old liabilities have been lumped, involves the issue of a security, bringing it into the remit of securities regulators in the US.Lloyd’s disputes this challenge, but says it could have a serious impact on its ability to include all US names in the settlement offer.Ron Sandler, chief executive, says in an introduction to the document: “Progress has been made in recent weeks but I cannot rule out the possibility that we may decide not to make the offer to US names, either generally or in certain states.”Mr Sandler tells the names that if the offer is not accepted there is a real risk of a failure of Lloyd’s, which has lost pounds 8bn in the last five years. If other shares have been used as securities, investors will be asked to put up more money.Comment, page 17. Lloyd’s of London yesterday warned American members they could be excluded from the pounds 3.1bn rescue plan if legal challenges in the US continue. Their net investment in US equities has amounted to $290bn at an annual rate so far this year.That means American investors are running down their cash holdings, relative to total savings, to a record low of 31 per cent, according to Ms Dudack.There are signs that the mutual fund inflow may be slowing, however.

The May figure was $18bn, down from last December’s $25.4bn.The other key warning signal, she argues, is the growth in margin debt – or borrowing against the security of other assets to buy shares. It has reached an all-time high, and could prove a problem once share prices do start falling. Small technology stocks bore the brunt of the 1983/84 correction.A further similarity is that both 1983 and 1996 have seen huge surges of investment in the stock market through mutual funds. That was a boom year for bio-tech issues – of which only a handful, including Chiron and Amgen, remain as listed companies. According to Securities Data, which tracks “initial public offerings”, they raised $15.8bn in the second quarter of this year, or about twice the annual rate set in the previous record year of 1993.Many of this year’s flotations are hi-tech stocks, making the parallel with 1983 striking. If there are further rises in bond yields triggered by the first Fed increase in interest rates or new inflation fears, share prices could tumble.The optimistic case is that bond yields could fall if the economy turns out weaker than the markets currently expect, which would reduce the yield ratio from present danger levels.So far, the optimistic view has prevailed. The latest Merrill Lynch survey of US fund managers showed a sharp fall since March in the proportion of investors who expected the economy to pick up, and consequently a sharp rise in the proportion planning to invest in bonds.