Today Andy Silvester talks to Victoria Scholar, Head of Investment at Interactive Investor.
They go through Rishi Sunak’s unveiling of a windfall tax today, the Fed’s plans to hike rates by 50 basis points in June and July, Elon Musk’s painfully slow acquisition of Twitter, and JD Sports founder and CEO Peter Cowgill’s shock departure from the firm.
And in other business news: Ted Baker appears to be edging closer to a private equity takeover, transport group FirstGroup is considering a £1.2bn takeover bid from I Squared, and Nadine Dorries has launched a charter review of the BBC.
Episode transcript (auto-generated)
Andy Silvester 0:08 Good afternoon and welcome to The City View podcast. I mean Andy Silvester, the editor here at City A.M. All the talk today about the windfall tax or rather the temporary targeted energy levy that will be put on knotty oil and gas retailers announced by Rishi Sunak. Today as part of a widespread Cost of Living Package for the most hard pressed Brits we’ll talk about that and much more, including the ongoing takeover of Twitter with interactive investors Victoria scholar in just a minute always good to have Victoria on the programme. But for now, the corporate news and Ted Baker has narrowed its losses as the fashion brand appears to be edging closer to a private equity takeover. London listed retailer posted a loss for tax of just 44 million in preliminary results for the year ended January 2022. That’s an improvement of about 70 million from the year prior group revenue up 20% 428 million strong sales momentum and continued into 22 After what co ratio Osborne said was a steady return to the office and social events. Earlier this week. Private Equity giant Sycamore pulled out of a bidding more for the brand. The retailer revealing it has now received several revised takeover proposals from other parties. Transport group first group has announced it is considering a 1.2 billion pound takeover bid from private equity group ice squared. In a nature investors first group had told shareholders it previously rejected more than one bid from ice squared but it was currently considering this letter bid 118 pence per share which is about where this share is trading but there will also be a 45 P uplift depending on the outcome of first groups divestment from us transport firm first transit as well as the proceeds from Greyhound sale or other complex arrangement but nonetheless, one that has been considered rather more seriously than previous iterations. Lowering Heathrow Airport charges will impact passenger services. According to the airport’s chairman will date and former commercial Secretary of the Treasury Dayton said higher airport charges are needed if Heathrow wants to remain Britain’s hub airport and deliver an excellent service to travellers. Just because airlines argue for a cheaper plan that doesn’t mean it delivers anything but trouble for passengers who wrote it down conservative home under investment means queues, delays and a reputation for hassle. Speaking of hassle more of it for the BBC culture Secretary Nadine Dorries launching a charter review of the BBC, which will examine if reforms are needed to ensure greater impartiality of the public broadcaster the midterm review of ante will examine whether the broadcaster is delivering for licence fee payers and consider whether a more diverse workforce with greater impartiality should be on the cards BBC also announcing it will ditch BBC Four today as part of cost cutting measures elsewhere, the government is looking at the buildup of stock by French Israeli billionaire Patrick dry in BT on national security grounds, definitely one to watch. And elsewhere, there are plenty of warnings around that businesses can be hit by a raft of new climate change legislation, which will turn into significant regulatory burden. That’s all in the corporate News Front. There’s plenty more on cnn.com and insert here tomorrow in the newspaper. But for now, let’s bring in Victoria scholar from interactive investing. Victoria joins us every fortnight to look at news both this side of the Atlantic and the other Victoria We usually talk about matters in the city. Today we’ll kick on with matters in Westminster, I suppose and how it impacts on the city, the announcement of a windfall tax that isn’t called a windfall tax, a temporary levy on energy companies or whatever it was that Rishi Sunak came up with today, as part of a cost of living package of some scale and significance. It has to be said, if you’re explaining this to an alien, you’d have expected BP and Shell share prices to clap through the floor upon the announcement. But that hasn’t happened, in large part because of some of the intricacies of the windfall tax and how its arranged. And just just give us kind of your your first reaction to the, to the announcement on Yeah, what it means for those those energy companies and for investors.Victoria Scholar 3:58 Yeah, I mean, well, I think the first thing to say is that for the Tories, it’s probably a nice distraction from party gate and the SU grey report, which obviously has been very much at the top of the news agenda. But in terms of what we heard from Sunak, first of all, he was very much addressing the cost of living crisis and sort of discussing the fact that it is, in his words, simply unacceptable. And that was before outlining this 10 billion pound package to support households who are struggling. Like you say, the share price reaction isn’t necessarily what you might think on first glance, we saw shares like SSC and Centrica energy companies, which are not actually going to be taxed sharply lower. And that was because the chancellor said that there needs to be a major review of the market, suggesting that the windfall tax could actually be extended on to other companies soon. And then with BP and Shell, they weren’t down so much. You know, we’re seeing oil prices put higher so that’s the shorting the oil equity space. But then on top of that a lot of this was already signposted, we were expecting a windfall tax. So perhaps some of that was already priced in. You know, there’s sort of two schools of thought as to whether this is a good idea or a bad idea. You know, clearly that oil and gas companies have made incredible profits lately. No thanks to their fundamentals because of the war in Ukraine and a sharp jump in commodity prices. But then there are questions about incentives and the fact that they were very much loss making at the height of the pandemic, and there was no support given to them. At that point. That sort of my analysis, I’d say. Andy Silvester 5:40 Yeah, I mean, hugely loss making, right and as you say, there was people in the streets calling for bailouts for the oil and gas companies when the oil price sank to, to zero for a negative below. Zero. So. So yeah, it’s it’s an interesting one, it’s multifaceted. You can see why the government felt minded to do something on cost of living. It’s interesting, some of the business groups, even the ones that are considered perhaps a bit more free market, like the iPod, saying today that anything that helps consumer confidence helps the economy more generally. So there seems to be this feeling that this this injection of cash, may give households a little bit of incentive to go and spend a bit more than they might have otherwise done. But yeah, and that’s why we saw some of the retailers actually put higher on expectations that there is a little bit more leeway for households and individuals in terms of their cost of living crisis, and they’re just general cash in their pockets. Yeah, I was surprised to see those retailers shoot up because in the grand scheme of things when you when you look at the headwinds that are facing the economy, I don’t necessarily think 600 quids gonna make huge amounts. Victoria Scholar 6:47 But it’s not hugely generous. So Andy Silvester 6:49 Yeah, exactly. So yeah, once a watch, but I find it fascinating that we’ve we seem to have since the pandemic at least sort of pioneered in the US really, on a big scale. But this idea of direct payments to people, one off Direct Payments seems to have come in vogue in politics, in these difficult times. will wonder I wonder if that will continue. Speaking of the States federal minute have federal minutes Federal Reserve minutes out yesterday, and you’ve been reading them? What can we what can we take from between the lines? Victoria Scholar 7:27 Yeah, well, I mean, this is actually the bigger driver for markets. Today, we saw a strong rally on Wall Street and that positivity has been extending into the Asian session and into Europe today. Essentially, there are a couple of takeaways, firstly, the Fed has essentially signalled that it’s going to carry out another 250 basis point increases. That’s the most likely scenario for now, in June and July. So it’s kind of an expedited rate hike process to get it to more neutral to use the Feds lingo. And there was also discussion about the US economy, clearly the Fed is very concerned about inflation. But it also judged that the US economy is very strong. So that was a positive, which helped lift markets. And also this expedited tightening process could mean that by the end of the summer, the Fed could have a bit of space for a possible pause. And it’s likely that we’re gonna see further 25 basis point hikes in autumn. But the fact that it’s really pushing forward, it says, you know, it’s prepared to adopt this so called restrictive policy, which means it’s willing to let the economy slow in order to tackle inflation, just really feels as though the Fed is going gung ho when it comes to inflation, really trying to get it under control, and in the market is very much encouraged by that kind of talk. Andy Silvester 8:45 Yeah, no, it certainly is. And let’s stay on that side of the Atlantic for now and dig into a topic that I’m not sure if I enjoy talking about or not at this point, which is Elon Musk’s take talked about certainly is but Musk Musk himself. We will add to the, to the commentary around it now. Things are changing, because as this process drags on in evermore public fashion, Twitter share price has sort of had sort of had other ideas really for very long. And as a result, that takeover structure has had to change. Victoria Scholar 9:22 Yeah, so it’s an interesting we saw Twitter shares, make gains today. Essentially, after Musk pledged an extra just over $6 billion in equity financing to contribute towards his $44 billion offer for Twitter. This is according to a regulatory filing. Before this, he’d obviously put the deal on hold, and citing concerns about the level of spam bots on the platform. There was a lot of cynicism towards this because everyone kind of thought, Well, clearly he must know how many bots overall or at least he’d have as much information as he could before he went into the steel. So there were questions about whether he was either trying to cheapen the offer that he made, or whether he was actually trying to pull out entirely. But you know, we’ve seen the shares bounced by about 6%. But to put it into context, there’s still another near 40% to go to get back up to that agreed share price of 5420. So, the market is more optimistic than it was yesterday about a deal. But it’s certainly not banking on a $44 billion deal. And there could still be no deal at all. So in classic Musk style is likely to be lots of twists and turns and he’s notoriously unpredictable. Andy Silvester 10:38 Yeah, he is notoriously unpredictable, usually quite predictable at the SEC, because what Elon Musk is doing on Twitter, etc, is it does not strike me as being within the framework. And the guidelines usually set out when it comes to takeovers in the US. And one assumes that the SEC at some point is going to say something to Elon, but they don’t seem to be quite as nimble as he is. Anyway, we shall park that for now. And we’ll move back over here. And because there’s a great little corporate story, but a corporate story, we don’t entirely know the full details of city terms, at least a bit of a bombshell announcement dropped last night for 12pm, just a few minutes for market close. The one of Britain’s retail Titans was stepping away and not stepping away via a sort of stretch down transition period exit but immediately. Victoria Scholar 11:26 Yeah, I mean, normally with these departures, they sort of say, you know, I’m leaving a bit, they have a kind of six month handover or however many months. But clearly, there’s a bit of bad blood going on, because we’ve seen that the chairman and founder of JD sports, Peter calgel, has been ousted with immediate effect after 18 years. And like you say the news was announced just ahead of the market close yesterday. So we saw the majority of the market reaction yesterday a big slump in the shares. But we seen an extension of those declines today. But it looks as though the reason why is because he’s been blocking attempts by the board to split his role of sort of exec Chairman into a chairman and chief executive. And there was also a bit of unease, I think around his 4 million pound bonus coming off the back of the furlough scheme that the company benefited from. But it needs to be said that under his tenure since 2004, JD sports shares have done extremely well, particularly since 2015. Until November of last year. Obviously, the stock has been under pressure since those highs down about 50%. But you know, these are about big global macro factors and the general market uncertainty, but now the company is facing a lot of uncertainty. When it comes to the future of the C suite. It’s looking for a new CEO and it’s looking for a new chairman at the same time. Andy Silvester 12:53 It is and it’s strange because it was developing into a bit of a British success story. I mean, I remember when they most like musicians, it’s not always easy for Brits to crack America but JD sports has done that when they opened in Times Square there were queues outside and they really focused in very closely on those core brands Nike Adidas developing those relationships with them and it feels like a bit of the end end of the year I suppose on the high street because he obviously Mike Ashley moving away from top jaw but Fraziers as it’s now known previously, how many styles and retail should we say? Yeah, indeed. All moving away. And it just Yeah, it feels like moving to a new era. But certainly two personalities moving off the retail scene that will be will be greatly missed by journalists if nobody else. And Victoria always pleasure. Thanks for joining us. Victoria Scholar 13:38 Thank you so much. Andy Silvester 13:41 That was Victoria scholar from interactive investment. And that’s all from me on the day when the Tory party will and truly gave up on the free market. See you soon.