Weekly stock-market round-up
According to the original plan, channel tunnel owner Eurotunnel should by now have put the ferry companies out of business, cornered the cross-channel market and become a cash-generating machine paying healthy dividends.
Instead, its market share is static at best, it’s up to its eyeballs in debt, and dividends are a far-off dream. The company has already been bailed out by its creditors once. Now it’s getting the begging bowl out again.
It wants to reduce the amount it charges passenger and freight operators for using the tunnel, believing this will boost traffic. But the company cannot afford to do this when its finances are so weak. So it’s asking for help from anyone prepared to give it, arguing that this would be an ‘everyone wins’ situation.
But the reality is that unless Eurotunnel can boost revenue quickly, it will finally go bust in 2006. Like Concorde and the Humber Bridge, the Channel Tunnel is a great engineering achievement, but a financial disaster.
One British company that’s an engineering marvel and a financial success story is BSkyB. In the space of five years, it has shifted practically its entire subscriber base of seven million onto a digital platform, pulverised the cable operators into near-bankruptcy, and made Britain one of the world’s leaders in digital television.
Doing this was an enormous financial gamble, but now it is paying off. This week the company said profits are starting to flow, and started paying dividends again. Much of the credit for this goes to Tony Ball, the company’s former chief executive. His successor, Rupert Murdoch’s son, James, doesn’t have a great deal left to do.
Psion, one of the brightest stars in the tech boom, saw its shares flop this week after it said it would sell its stake in Symbian, a joint venture making operating systems for mobile phones. The City was disappointed with the price Psion secured for its stake, which it sold to Nokia, one of the other partners. Symbian was once seen as the most promising part of Psion. The sale leaves Teklogix, which makes wireless computer devices for industrial uses, as Psion’s main business.
BP announced massive profits of over $10bn this week. But behind the ‘fat cat’ headlines, BP and all the other major oil companies are in a bind. Their production growth has ground to a halt, and they are having to spend fortunes (some $19bn last year) finding and developing new reserves. Spending this money reduces their profitability, presenting them with a stark choice – accept lower returns, or stop growing. The one thing that might yet save them is the oil price, which has remained above $20 far longer than many expected. If this continues, returns may remain correspondingly high for a while yet.