Whitbread, owner of Premier Inn hotels and Costa Coffee cafes, ticked up 9p to £17.30 as Morgan Stanley argued that a “Costa demerger would make sense”.
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It is not the first time City scribblers have speculated about such a move and Whitbread has previously dismissed the talk, saying that Costa should remain part of the group in order to maximise opportunities for international expansion.
But, Morgan Stanley thought a demerger of Costa, which they calculated could be worth as much as £1.5bn, could help lift Whitbread’s share price.
“We think the arguments for retaining Costa are thinning given the business is now large enough and cash generative enough to be separately listed,” said Morgan Stanley. “Demerging would not give away value as investors could choose whether to sell their shares or not,” it added.
Morgan Stanley’s argument for a demerger came as part of a wider thesis, suggesting that Whitbread could sell off £250m of property a year to help fund the investment in its Premier Inn chain and leave headroom for a 50pc rise in dividends. Whitbread’s rise aside, the benchmark index sank into the red, weighed down by a raft of miners. After BHP Billiton cautioned that it was seeing signs of Chinese demand for iron ore “flattening”, other diggers took a tumble. BHP sank 83p to £19.65 while Rio Tinto retreated 150p to £34.64½ and Antofagasta fell 45p to £12.01.
That pulled the FTSE 100 down 69.7 points to 5,891.41 while the FTSE 250 tumbled 152.25 points to 11,633.24.
Mining shares proved a drag on the second tier, too, where Hochschild slipped 25.6 to 462.9p. Bringing up the rear, however, was Exillon Energy which tumbled another 16.6 to 188.4p after the oil producer on Monday pushed back its target of producing 17,000 barrels of oil a day from June until the end of the year.
Not far behind Exillon was Regus, which retreated 8.8 to 104p despite the office rental business posting a 12pc rise in annual revenue to £1.16bn.
At the other end of the spectrum, speculation that Tata Communications could make a move on Cable & Wireless Worldwide (CWW) sent the telecoms group soaring. Tata said at the beginning of March that its plans for an all-cash bid for CWW were “at a very preliminary stage”, adding that it would decide on an offer by the end of the month. Early suggestions yesterday that Tata was poised to make a formal offer for the company were played down, but CWW put on 3.11 to 38p.
Vodafone has also declared an interest in CWW and it added 3.45 to 170.8p after Morgan Stanley analysts raised the prospect of Verizon making a tilt at the mobile phone giant. Arguing that Vodafone was cheaper than Verizon – with which the British company already has a joint venture – the broker said that one way to bridge that gap would be Verizon buying up Vodafone.
Boosting Vodafone too was India’s Supreme Court dismissing a plea from the tax office to review an earlier ruling that Vodafone was not liable to pay any tax on its acquisition of Indian mobile assets. Vodafone won a legal battle in January that it was not liable to pay any tax on its $11bn purchase of Hutchison Whampoa’s Indian mobile business, from which the government wanted tax of $2.2bn.
Vodafone was one of only a baker’s dozen of stocks managing to keep their head above water.
Tesco added 1¾ to 332¾p, lifted by ING raising its rating on the supermarket giant to “hold”. Its stablemate, J Sainsbury, crept up 0.9 to 305½p.
While retailers managed to tick higher, with Debenhams edging up 0.85 to 76.55p, consumer giant Unilever slid 25p to £20.64. Weighing on the blue-chip maker of Persil and Marmite was a note from Investec cutting its rating on Unilever for the first time in 17 years.
Lowering his stance to “hold”, analyst Martin Deboo said: “This is a big moment for us, as we have retained an unbroken 'buy’ recommendation on Unilever since 1995. No, that isn’t a misprint and bah humbug to anyone who chooses to accuse us of not holding long term investment perspectives.”
He added that Investec’s buy rating had “weathered many storms” and said the broker can “console ourselves with the good news that £100 invested in Unilever in 1995 is now worth £568, against only £343 for the FTSE 100”.
But while Mr Deboo remained “supportive” of Unilever, he added that factors such as a renewed threat from rival Procter & Gamble, which has pledged to cut $10bn of costs, and a resurgence of commodity inflation are “making us more cautious”.
Falklands explorer spikes on option deal
Falkland Oil & Gas (FOGL) spurted up as the oil exploration company revealed that an unnamed organisation had bought an option to take a stake in its drilling programme.
Under the deal, the unnamed party has agreed to pay $6m (£3.7m) for an option to buy a 25pc stake in FOGL’s licences off the South Atlantic Islands for $40m cash and a share of historic and ongoing costs. There was speculation that Cairn Energy could be the interested party, but that was thought to be wide of the mark. Other whispers suggested that the anonymous group could come from beyond the confines of the London Stock Exchange. “Overall this looks like a positive deal and highlights that the industry is interested in the company’s high impact exploration acreage in the South Falklands,” said Oriel. FOGL jumped 3½ to 64½p.