BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Capital Markets

Why an O2 IPO could be a big hit

Posted on September 23, 2016


A good rule for the cautious investor is never buy a share until the company has been publicly listed for at least a year — or two for businesses being sold by private equity. These holders are natural sellers and their skills include prettying up companies first. They have no long-term interest in the prospects for the business, and they know much more about those prospects than you do.

Rising share prices have presented the opportunity to the owners of Misys, Biffa and Hollywood Bowl among others. It may be that Misys is so transformed that a financial software business bought for £1.2bn in 2012 is worth £5.5bn today, or that this time, waste disposal really will prove that where there’s muck there’s money, or that we are going back to the future with sweaty shoes and tenpin bowling.

    However, there is an exception to test every rule, and this year’s monster flotation, O2, may be it. We have the inestimable Margrethe Vestager, the European Union competition commissioner who vetoed the purchase of O2 by 3 to thank for the opportunity. This ’orrible merger would have cut the number of significant players in UK mobile telecoms from four to three, something that is self-evidently anti-competitive.

    O2’s owner, Telefónica of Spain, is essentially a forced seller, struggling under a €53bn debt mountain. It has yet to commit formally to a public offering, but is widely expected to float the business this autumn. The price agreed with 3 was £10.25bn, which provides a good idea of the float valuation. Telefónica has said it plans to keep a majority holding, another powerful incentive to see share trading off to a good start, since it would make the rest easier to sell in the future.

    The offer also presents a fine chance to win some customer loyalty in an industry which generally treats users with indifference bordering on contempt. Unfortunately a retail offer, let alone one targeted at O2’s 25m customers, is unlikely because the bankers see it as too much like hard work. Still, a big company priced to go is a rarity. Pay attention.

    How to get Grayling off the hook

    Whisper it, but the government may actually decide where to build London’s next runway. There is something of a high-stakes poker game going on at Heathrow, between the official proposal (a third runway) and the unofficial “Heathrow Hub” which extends one, and potentially both, runways westward. The Hub is much cheaper, would cut the early morning aircraft noise over west London, and redeem the previous PM’s promise of “no third runway.”

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    Heathrow’s owners have cold-shouldered the hub. Ferrovial of Spain overpaid for BAA, the airport’s owner, in 2006, and today’s shareholders also include China Investment Corporation, Qatar Holding and the Singapore government. A go-ahead for the third runway would dramatically raise the airport’s Regulated Asset Base, boosting what is a lovely long-term, low-risk investment.

    However, Gatwick is winning the PR battle, and the danger for Heathrow’s shareholders is that the best may be the enemy of the good. Were they to formally embrace the hub as an acceptable second-best expansion, they might yet allow transport minister Chris Grayling to announce an elegant solution to this interminable problem.

    Mine’s a gamble, not an investment

    Now that shares in the big mining companies have soared from their January lows, the analysts are saying investors should buy them. There is something about this industry which wrongfoots experts and executives alike, as illustrated by the boom-bust-recovery at Glencore.

    Floated in 2011 at the peak of the commodity boom, the shares dribbled down from 550p to a little more than 300p in 2014. Claiming they were cheap, the company then spent the next year and $1bn buying its own shares. They were nothing of the kind, and six months later Glencore was forced into an emergency equity issue to raise more than twice as much at less than half the price.

    Last week Société Générale decided Glencore shares were cheap at 180p and this week Liberum agreed that they were now too expensive to sell (sic) at today’s 210p. Goodness, dividend payments might even resume next year. Plenty of scope for trading, then, but please don’t call it investment.