Royal Bank of Scotland has a new CEO and Keller’s latest setback could attract takeover interest

“The pound is doing its best to fight back after a tough period. A 0.3% rise against the dollar to $1.2557 has stirred up investor interest in UK domestic stocks again, as illustrated by retailers, supermarkets, housebuilders and banks rallying on Friday,” says Russ Mould, Investment Director at AJ Bell.

“The currency has been spurred by comments from European Commission president Jean-Claude Juncker indicating that a Brexit deal was still possible.

“A stronger pound is generally bad news for the FTSE 100 index given that approximately three quarters of its constituents are overseas earners. That might explain why the index has slipped 0.2% to 7,339.

“Elsewhere, oil prices firmed 0.7% to $64.84, European markets saw small losses in early trading and Asian markets were focused on large gains in India.
The BSE Sensex index jumped 4.9% after finance minister Nirmala Sitharaman announced various measures to boost the Indian economy.

“London-listed investment trusts with exposure to the country jumped on the news, including Aberdeen New India up 5.2% and JPMorgan Indian up 4.5%."

Royal Bank of Scotland

“Since the departure of its disgraced former CEO Fred Goodwin in the wake of the financial crisis, there has actually been a surprising amount of stability at the top of Royal Bank of Scotland, despite plenty of background turmoil.

“If Stephen Hester was parachuted in for a rescue job, and his replacement Ross McEwan’s job was to return the bank to normality and narrow the focus on good old fashioned retail banking, what is the remit for McEwan’s successor Alison Rose?

“Rose looks like a continuity candidate, given she has 27 years at the bank, and she was the favourite for the role. It is notable that she will be the first woman to head a major British bank.

“McEwan achieved the milestone of returning RBS to the dividend list, and Rose will be looking to leave her own mark.

“One of the key challenges will be managing the transition back to full private ownership – a tricky task given the remaining 62% Government stake.

“It is also worth considering that a potential Labour-led administration might look to keep the bank in public hands to use it as a vehicle to support domestic economic growth.

“Rose also faces a likely challenge from the economic fallout associated with Brexit, in particular the risk of a spike in bad debts.”

Keller

“British businesses are increasingly takeover targets for overseas companies as a weak pound increases a suitor’s purchasing power. Private equity firms are also awash with cash and are looking to do deals.

“In certain situations there are fundamentally good British businesses going through a bad patch which also leaves them vulnerable to a takeover approach thanks to the double hit of a weak share price and the currency effect.

“Ground works engineer Keller is looking like a sitting duck after a spate of bad news which has now resulted in the departure of its chief executive.

“It generates a lot of earnings overseas, which are more attractive due to the weakness of sterling. Keller operates in over 40 countries through 22 business units, and generates only 3% of its revenue from the UK. Just over half of group revenue comes from the US market, another third from Europe, and the rest from Asia.

“While it is experiencing various negative issues such as slower than expected trading in North America and uncertainty around contract timing, growing urbanisation and infrastructure spending ultimately provide plenty of growth opportunities for the group.”

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