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“Monday looks like the calm before the storm for the UK stock market. A flat FTSE 100 and a small dip in the FTSE 250 suggest investors are sitting on their hands until Tuesday’s big Brexit showdown in parliament. “Among FTSE 100 stocks, gold miner Randgold Resources was the biggest riser, followed by drug maker AstraZeneca. “The biggest fallers were British Gas-owner Centrica and delivery group Royal Mail. Remember that Labour had previously threatened to nationalise utilities and Royal Mail, so investors may be starting to price in a higher likelihood of a general election in the near future and for Labour to have a strengthening hand. “Over in Asia, markets were in a bad mood following weak data from Japan where the economy shrank more in the third quarter than initial estimates. Tokyo’s Nikkei 225 index fell by 2.2%,” says Russ Mould, Investment Director at AJ Bell.
Interserve
“Almost year since the increasing intractability of Carillion’s problems became apparent, its peer Interserve appears to be losing the confidence of investors at pace.
“Ostensibly a huge business with more than 70,000 staff, today Interserve is valued by the market at a little over £10m – the kind of valuation typically reserved for smaller businesses which are not yet making any money, not firms generating revenue in the billions.
“In fact, Interserve had arguably got too big, with too many moving parts, and this left it particularly vulnerable when margins came under pressure. “In January, after Carillion’s eventual collapse, Government officials began keeping watch on Interserve which faces the same toxic mix of loss-making contracts and unsustainable borrowings.
“The company’s solution is a big debt-for-equity swap to reduce the net debt-to-earnings ratio to 1.5-times. Based on current estimates and guidance the year-end ratio is expected to be closer to five times.
“Such an effort is likely to result in significant dilution for existing shareholders, which explains why the shares have been so heavily marked down this morning.
“Management are doing their best to reassure that the future of the business is viable – chief executive Debbie White says its ‘fundamentals’ are ‘strong’ and this plan will ‘provide a solid foundation’.
“However, the market is likely to remain nervous until the details of the deleveraging effort are revealed and confirmed, something which is planned for early 2019.”
Hollywood Bowl
“Sometimes it is the simplest things in life which attract the public’s attention and also generate decent money for the proposition’s operator.
“Hollywood Bowl’s business model involves a person throwing a heavy ball down a lane with the hope of knocking over some pins. For that activity it has generated £23.9m pre-tax profit in a year, which is quite remarkable.
“Earnings beat expectations at the profit level, plus shareholders are being given a special dividend for the second year in a row.
“It shows that classic leisure activities still have a life of their own despite being surrounded by a whirlwind of come-and-go trends which compete for the consumer’s wallet.
“Nothing beats some competitive fun time with family and friends and Hollywood Bowl has done its very best to ensure that prices remain affordable while also finding ways to get customers to spend more money once in its centres.
“Notably every single revenue line saw growth in its past financial year, taking in bowling, food, drink and arcades.”
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