Weekly market review (14 – 17 July)

Northern Rock is one of the smaller mortgage lenders, and so doesn’t need to defend market share by watering down its lending criteria in order to grab more customers. The result is that its mortgage arrears are half the industry average. It’s also ruthlessly efficient, with a very low cost base. It admits the housing market will slow down, but thinks that remortgaging will help offset that. The shares, knocked down recently by persistent worries about a housing market crash, are a good long term holding.

Remember all the ‘fat cat’ takeovers that followed rail privatisation in the 1990s? They’re back – this week saw the first takeover in the rail business since 2000. FirstGroup is buying tiny GB Railways in a deal that will turn several of the smaller company’s directors into millionaires. The attraction for FirstGroup is that GB Railways is on the shortlist for the ‘Greater Anglia’ franchise, which will operate all trains out of Liverpool Street. FirstGroup itself, which already operates some of the routes, did not make the list. However, the deal looks like being a one-off. The uncertainties of the franchising process, and the rail industry generally, mean that bigger takeovers are unlikely


Shares in Marks & Spencer fell heavily this week after the retailer reported slower sales growth. The slowdown was largely expected, and the company was candid about the fact that the timing of Easter had boosted sales. But there was good news too. The company’s all-important clothing sales improved on the previous quarter, and the stock position going into the summer sale was tighter. That’s bad news for shoppers – it means there’ll be fewer discounts – but margins will be better and profits therefore higher. The shares look fairly valued now, having once traded at a steep, and in our view unjustified, premium to the rest of the sector.

SSL, the company that makes Durex condoms and Scholl odour-eaters, is officially up for sale. It hasn’t said who the bidder is, but one name in the frame is Dettol and Harpic manufacturer Reckitt Benckiser, which has plenty of spare cash. SSL has had a rotten time of it over the past few years; the merger that created it was bodged, and it subsequently ran into trouble for ‘trade loading’ – selling heavily to wholesalers to flatter sales figures. A bid would be a handy exit for shareholders.

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