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“The FTSE continues to be stuck in the mud, slipping 0.6% to 7,654 on Thursday with notable weakness in utility, mining and insurance stocks,” says AJ Bell Investment Director Russ Mould.
AVEVA
“Thanks to its recent combination with Schneider Electric full year results from industrial software specialist AVEVA are fairly tricky to unpick. On some measures profit is up, on others it is down.
“The salient details are contained in the pro forma numbers which encompass the performance of the former Schneider business alongside AVEVA.
“On this basis revenue is 8.6% ahead and adjusted pre-tax profit is up 6.8%, and for its part the market is very positive on the numbers.
“It will be possible to make a more informed judgement on the wisdom of the Schneider tie-up in 12 months when the integration process will be more advanced. The company is targeting annual cost synergies of £25m by the end of the 2020 financial year.
“Corporate synergies refer to the financial benefits realised from M&A activity and as well as saving costs, companies will also look to achieve revenue synergies.
“This is the opportunity of a combined entity to be more than the sum of its parts. This might be achieved by, for example, selling Schneider products in previously untapped markets where AVEVA has a sales channel.
“These benefits are difficult to quantify at present and AVEVA restricts itself to noting it expects to ‘generate material revenue synergies over the medium-term’.”
Rolls-Royce
“The hefty job losses announced by aircraft engine manufacturer Rolls-Royce had already been widely trailed in the media.
“Reducing costs is typically applauded by shareholders as it tends, in the short-term at least, to boost the profit and cash flow of which they are part owners.
“Although it will be little compensation to those affected, it would be inaccurate to describe this as a slash and burn exercise by Rolls-Royce management.
“Chief executive Warren East has been arguing for some time that there is duplication of roles within the business and the company’s cash generation has consistently disappointed.
“As well as underpinning an improvement in free cash flow to £1bn by 2020, East says the announced changes will allow the business to deliver ‘well beyond’ this in the long run.”
N Brown
“News that fashion retailer N Brown is thinking about shutting all of its retail stores sounds dramatic, but its physical shops only account for 2% of group revenue.
“It’s a sign of changing times that retailers are brave enough to reshape their business to match how consumers buy goods today and not feel compelled to keep ailing stores alive simply because that channel is traditionally how items were sold in the past. It seems inevitable that many other retailers will follow suit in time.
“To put the situation in context, N Brown generates 75% of its sales online and three quarters of these transactions are made via mobile devices. The company makes the remainder of its money in areas like customer credit.
“If few people are visiting stores, why keep them open? On one hand, they help to keep the brand in front of the public and act as a showcase for a retailer’s products. On the other hand, they incur costs which may not be justified if the returns are inferior.
“N Brown only has 20 stores and while shutting them may sadly cause job losses, it could be a positive decision for the business over the long term.”
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