If one was looking for an almost perfect textbook example of how to really, really annoy the City of London, Western & Oriental would surely be top of the pack.
W&O’s latest move to delist from AIM is the final nail in the coffin for small cap travel companies on the London market. From now on any budding travel entrepreneur looking to list their company in London will have to pass the gauntlet of questioning that will revolve around a simple challenge – “you’re not going to do an W&O on us are you?”
The last time I looked the share price was in absolute freefall as the management announced that they’d cancel the AIM listing on April 15 subject to shareholder confirmation (which is probably a certainty given the cleansing of the shareholder register in recent days) .
No amount of soothing words about the company offering an off exchange dealing facility will calm any institutional investors looking to realise the value of their failed investment. As is always the way with these minor scandals, the actual icy cold logic behind the delisting makes sense. Now that the travel division has been offloaded on to a director, the company needs to cut costs and focus on the core – and profitable – events division.
This unit is probably likely to make £700k in 2010. That in itself suggests that the husk of W&O is a viable investment but that sadly the stockmarket listing is currently costing the company £200,000 a year, money which the board believes can be “better deployed as additional working capital in the business.”
The directors also have a point about spending a ‘disproportionate amount of senior management time’ talking to the City, and of course the plummeting share price – and poor liquidity – does indeed have a ‘considerable negative effect on the perceived market value of the group’.
Nor are they wrong about the current market capitalisation creating “an artificially low starting point for discussions with any potential buyer of the business.”
All of this is, with hindsight, perfectly sensible stuff and understandable if you are one of the last remaining major shareholders. Sadly for every other investor it’s a complete disaster – for the cynics it’ll be a perfect example of why you really can’t trust the promises of growth from a travel company looking to list on the London market.
In far, far too many cases investors have been sold on a growth agenda where some secular driver is supposed to deliver gold somewhere over the horizon. Sometimes the logic is putting together disparate businesses and driving in cost and sales synergies. In other cases it’s a new niche that has great potential future value.
The reality is that the growth is in fact illusory. W&O’s own words on its (private) future sum it all up “the Company intends to pursue a strategy of profitability rather than growth going forward”.
Profits! They’re always a nice thing to have, aren’t they?
And now for some bad news
The last week has not only brought some glorious bright, spring weather but also some good news courtesy of the budget and other key economic indicators.
You’ll all know the smidgeon of good news emanating from Osborne’s ministerial red box re APD whereas you might well have missed a recent survey from the housing front line, in this case from website Findaproperty.com.
This national property website proudly declared that they’d seen the biggest increase in UK property prices since May 2010, with an average increase of 0.5% (that equates to an increase of £1,122 in a month, bringing the average asking price of a home in the UK to £216,968).
The website hesitantly suggested that this was the second consecutive month of increases; with the South East yet again declaring the best numbers with an increase 0.9% in prices (the wooden spoon belonged to the North East where prices fell 0.2%).
So time to break out the champagne and book all those summer holidays?
Unfortunately this week also brought numbers from a rather more important household survey that’s closely watched by many leading economists. The numbers in question come from City research firm Markit and look at the changing dynamic of consumer sentiment.
The ebbs and flows of this index are one of the best gauges of consumer confidence available and the news from this survey is unbelievably grim. Markit asked households whether their financial situation had changed over the last month – astonishingly every income level (from less than £15k pa through to those with more than £57k) disclosed a deterioration in their household budgets.
The overall index is currently at 35.2 (50 would imply no change or deterioration) and according to the research firm this the “steepest monthly deterioration in household finances since March 2009.
“Almost 35% of households reported that their finances worsened since February, while just 5% saw an improvement. The resulting index was well below the 50.0 no-change value in March and signalled another sharp deterioration in household finances. Public sector workers remained more downbeat than those with jobs in the private sector, although finances deteriorated at record survey rates in both cases”.
Looking to the future – these numbers are necessarily estimates – the picture is equally grim, with record low levels again.
“People working in education, health and social services reported the most pessimistic assessment of their future finances since the survey began (53% expect a deterioration and only 14% an improvement). Sentiment about future finances among mortgage holders slipped well below the national average; dropping to the lowest since the start of the survey in February 2009 (53% anticipate deterioration and only 18% an improvement).”
To describe these numbers as deeply depressing is, I think, an understatement of epic proportions. Consumer confidence is clearly cratering and I suspect the budget will have done nothing to lift spirits.
The few, largely token, pro-growth items in the budget were welcome but will hardly affect most people – even the small number of entrepreneurs I talked to seemed a tad under-whelmed.
What really matters to aggregate demand within the economy are big tax increases, easier availability of credit, and evidence of a sustained pick up in jobs. These power the inner mechanics of the UK economy which in turn feed through into household spending and as we stand at the moment none of these triggers seems to be much in evidence.
The odds on a double dip in the UK economy seem to be growing by the day although we do currently seem to be the odd one out on the world stage, barring Portugal and Ireland – the global economy will take a hit from the tragic events in Japan but trend growth seems sustained and the US does seem to be continuing with its recovery.
The UK by contrast looks to be slipping backwards which is I suspect bad news for those late summer holiday bookings.