A welcome gentle breeze

Published on Friday 16 May 2008 21:18

LIKE an uplifting glimpse of the lesser-spotted grebe, another rare bird – a British Airways dividend – nested in the City yesterday.

British Airways

233p +9p

It was way back before the 9/11 terrorist attacks of 2001 that BA last considered itself in a position to reward shareholders. It has been a long-haul flight.

However, it is a mark of the public relations fiasco around the opening of Heathrow Terminal 5 that most of today's headlines are likely to be about chief executive Willie Walsh turning down his 700,000 bonus in recognition of that debacle.

Good for Willie. It is the honourable thing for him to do, and also the wise thing.

Can you imagine the uproar if he had accepted the bonus, even if the trigger point of achieving profit margins of 10 per cent on the back of record profits of 883 million have just been achieved?

It says a lot about how inured we have become to the seemingly iron-hulled cynicism of corporate life that it is considered remarkable when a chief executive shows some integrity like this.

Golden hellos for joining companies, golden handcuffs to retain directors, golden goodbyes when they leave, and heady financial rewards for failure, all seem more characteristic of the business world.

It would be over the top to describe Walsh's financial "atonement" as a breath of fresh air in the corporate sector, but it is a pleasant breeze (doubt if it will catch on).

Back on the broader BA picture, the company's shares had previously more than more than halved in the past year, as the company has been hit, like the whole airline sector, by the dual headwinds of slowing economies and soaring fuel costs on the back of the dizzying oil price.

The shambles of the Heathrow Terminal 5 opening just added acute embarrassment to these more chronic underlying pressures.

Yesterday's profits and the restoration of the disappeared divi were therefore highly welcome, and the shares responded with a 4 per cent rise.

The bad news is this is probably as good as it gets for BA for some time. It is widely believed that in the current difficult conditions the company is barely breaking even.

That is why Walsh is reviewing the airline's capacity, costs and network.

Few sacred cows are likely in this climate, where BA's fuel bill alone is likely to rise by about 1 billion this year.

So it is all a very mixed picture at the group: a stunningly good trading performance last year, a chief executive choosing an honourable course on reward/responsibility, and clearly darkening skies for trading in the current year.

It makes it even more likely that BA will hope for fruit from its current collaborative talks with American Airlines and Continental Airlines.

British Energy

715.5p +35.5p

MAYBE we will get a nuclear auction after all. It had been increasingly thought that only one potential buyer of East Kilbride-based British Energy remained in the takeover field, Electricit de France.

However, BE's shares bounced up 5.2 per cent yesterday as the company said it had received several takeover proposals.

While EDF remains the favourite given its nuclear expertise, it is also believed RWE of Germany and Iberdrola of Spain, the latter owning ScottishPower since last year, are also in the frame as a partnership.

Suez of France is thought to be an outsider, while British Gas-owning Centrica's apparent strategy of working its way into the fray via a link-up with a foreign bidder looks to be receding. EDF's bid – the only one currently on the table – is believed to be under 700p a share, but yesterday's jump in BE's shares to 715.5p suggests the auction could have further to run.

Things are muddied by the fact that Suez has said it will not undertake major deals until it has completed a merger with rival Gaz de France.

It has proved a saga despite the UK government's keenness to sell its 35 per cent stake in BE.

That is likely to continue as BE stressed yesterday that the talks with the various parties were at an early stage and each would take several weeks of further development.

But the Scottish group's shareholders will surely be hoping the eleventh-hour interest will mean an eventual takeout price of more than 7 a share to assuage any feelings of regret of a major industry player – supplying 20 per cent of Britain's power – slipping into foreign hands.

DOW JONES 12,905.70 -86.96

US SHARES fell yesterday after the price of oil hit a record and consumer sentiment data came in surprisingly weak, reviving concerns over spending.

The unease about the state of the consumer outweighed earlier optimism following a surprise rise in US housing starts and stronger-than-expected earnings from retailers Nordstrom and Abercrombie & Fitch.

US consumer confidence tumbled to its lowest in 28 years this month, according to the Reuters/University of Michigan Surveys of Consumers, as short-term inflation expectations hit their highest since the stagflation era of the early 1980s.

The Dow Jones industrial average fell 86.96 points, or 0.67 per cent, to 12,905.70. Broader indicators were also lower. The Standard & Poor's 500 index declined 7.30 points, or 0.51 per cent, to 1,416.27 while the Nasdaq Composite index lost 21.54 points, or 0.85 percent, to 2,512.19.

BAT

1,980p +14p

Broker says BUY

MORGAN Stanley has raised its rating on British American Tobacco to "overweight" from "equal-weight" and lifted its target price on the Lucky Strike maker to 2,230p from 2,130p.

It said that the tobacco sector is benefiting from consolidation.

The broker added that it foresees double digit earnings per share growth for all European tobacco companies in both 2008 and 2009.