BusinessCompany NewsWeekly stock market round-up

Weekly stock market round-up

In the news this week: GUS, the Hilton Group, HSBC, Lloyds TSB, Fitness First, British Energy, PizzaExpress and radio shares.

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GUS, owner of Argos and Burberry’s, is to buy DIY chain Homebase from Permira, a private equity firm. The £900m price tag represents a £150m mark-up on the price Permira paid to Sainsburys less than two years ago. GUS says there are significant savings to be made because Homebase and Argos share many suppliers.

More than a year after the New York atrocities, international hotelier Hilton continues to struggle against the downturn in worldwide travel. Analysts are paring their profit forecasts for this year and next. The prospect of war in the Gulf further clouds the outlook. Check out of the shares.

HSBC is to spend $14bn acquiring US lender Household International. At just six times earnings, HSBC is at least getting Household on the cheap. But with over a third of Household’s 50m customers classed as a poor credit risk, and with the US economy still struggling, the higher margins may start to look like slender compensation.

Lloyds TSB’s management appeared to be buttering investors up for a dividend cut last week, with finance director Philip Hampton suggested the present pay-out was unsustainable. But apparently spooked by the ensuing share price damage, and through more private meetings, Lloyd’s TSB appears to have drawn back. The shares look good value, even if the communication is poor.

Management at health club chain Fitness First has admitted it is exploring possibilities with bankers after a profit warning caused its shares to fall dramatically. But any bid would probably need to be pitched at a tidy premium to the current 127p share price. Fitness First is fundamentally a quality set-up, with a strong brand name and good long-term growth prospects.

British Energy, the struggling nuclear power generator, has confirmed that it is in talks to sell Bruce Power, its Canadian nuclear business. Bruce is the most profitable part of the UK electricity group, and a sale would help pay off the £650m government loan that’s financing British Energy’s working capital requirements and staving off insolvency.

Potential bidders for PizzaExpress seem to have lost their appetite – even before sitting down at table. Pub magnate Hugh Osmond and his consortium have pulled out of preparatory talks after the company’s board refused to meet demands over its terms and fees. In reality, though, an offer of around 350p a share was never going to be to shareholders’ tastes anyway.

Radio shares received a boost this week after executives at US media giants Clear Channel and Viacom expressed interest in buying UK radio operators, specifically Capital Radio and GWR. But the big guns are mindful of the risk of wasting their shareholders’ money, which would be highly likely given current UK radio valuations. Plus, there’s political opposition to US companies owning swathes of the airwaves. Consolidation will happen, but not just yet.

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