Lloyds' tentative triumph

Published on Monday 8 June 2009 21:01

Scrutineer

Lloyds

61.1p -5.1p

Venture

790p-5p

WHICHEVER way you look at it, the take-up of Lloyds' most recent rights issue shows a change in the market reaction to, and investor appetite for, cash calls. But the relatively enthusiastic response does not mean the City has forgiven the directors, or the sector.

The bank said it had an impressive 87 per cent take-up from investors for its 4 billion rights issue, although analysts point out that the figure paints an artificially cheerful picture of demand from normal investors.

Excluding the tranche taken by UK Financial Investments (UKFI), the government owned group which manages the taxpayers' stake in Britain's banks and owns 43 per cent of Lloyds, almost a quarter of the bank's shareholders opted not to take part.

But pointing this out is hairsplitting, when the take-up is compared with the market's appetite for cash calls a few months ago.

That a large majority of investors took up their rights is a triumph compared with where we were at the start of the year.

The reason the government owns a majority of Lloyds and RBS is that when it insisted on recapitalisation, investors – private and institutional – did not want to hear about it, after being burnt the last time.

But while the Government claimed that the yesterday's high take-up reflected a growing confidence in UK banking, this is only half the story. Investors took up the rights because shares were trading at a much higher price than they were offered at.

The reason for the premium is complicated. But whatever the case, there is growing sense that the banks' skeletons –be they exposure to complex financial instruments or simply poor investment decisions – are now mostly out of the cupboard.

Lloyds is not the only company to get a rights issue away recently. Last week, Rio Tinto shares surged as it pulled out of a hugely controversial tie-up with Chinalco in favour of a $15 billion cash-call.

The rise was not a major vote of confidence in Rio Tinto's decision-making, but relief that the message about how upset investors were about its Chinese move had got through.

Anyone who believes there is now faith in the health of the UK banking sector clearly was not in Glasgow for last week's Lloyds Banking Group annual meeting – that was a picture of seething anger.

Investors will continue to show anger, and directors will continue to be sacked, but now the City can take comfort from the way that the message is getting through.

AFTER looking like a near certainty when the Aberdeen company failed to find rival bidders, Venture Production's takeover by Centrica – or at least the premium investors hoped for from such a deal – may be slipping away.

Centrica, which approached Venture in 2007 at 950p, picked off the oil and gas company's two largest shareholders at 725p a share in March, a hostile move no doubt aimed at showing Venture's board that investors were keen to do a deal. A takeover, however protracted and unwelcome, looked likely.

Centrica, keen to reduce its exposure to volatile gas markets, was expected to move on price. Venture's board, in the absence of an alternative, was expected to eventually do a deal at a price that reflected the fall in the market value of oil and gas assets, however highly it values them internally.

The betting was on an agreement at or slightly above 850p a share, but the lack of news suggests both sides are hanging tough.

Several weeks ago, there were reports that Venture could ask the Takeover Panel to demand Centrica put up or shake up – make its intentions clear with a firm bid or say it would not do so.

The panel would almost certainly be sympathetic to such a request, given that Centrica bought its stake back in March and has had plenty of time to assess its options.

Centrica has never spelled out its intentions, and it seems almost certain, therefore, that Venture has not put such a request to the panel, most likely because shareholders have told its board not to antagonise Centrica and let it walk away.

Centrica is no stranger to playing hard ball. It has talked down the value of British Energy, paying EDF much less for the shares than the French company paid a few months earlier.

Last week it announced it had agreed to buy a stake in a major gas development in Trinidad, which could be transported to the UK, substantially cutting what its requires to cover its millions of customers.

This was the rationale behind looking at Venture in the first place, and Centrica has always claimed it had "other options".

Venture has demanded a "strategic price for a strategic asset" but may be finding that buyers really do have more options than it had hoped.

AG Barr looking tasty if the summer turns out to be hot

SCOTS STOCKS

AG BARR's shares are so illiquid that its day-to-day share price is usually driven by the whims of a few traders rather than the strength of the news. Yesterday was another case in point; the maker of Irn-Bru said like-for-like sales in the four months to the end of May were around 8 per cent ahead of the same period a year earlier.

Analysts at Brewin Dolphin and Investec welcomed the news and said there was a possibility of profit upgrades if the summer weather is as hot as forecast. Shares still fell 61p, or 4.6 per cent, to 1,263p.

Superglass, the Stirling insulation company, eased slightly despite revealing that fund management giant Blackrock had increased its stake to more than 13 per cent. Shares closed a quarter penny lower at 31.75p.

Braveheart, the Perth-based angel investor was unchanged at 29.5p, despite agreeing to buy a Yorkshire rival for "up to 1.31 million", with the structure of the deal meaning it is likely to pay less than this. Transport giant FirstGroup, which looks set to narrowly miss out on promotion to the FTSE-100 when the latest reshuffle is calculated based on tonight's closing price, eased a penny to 381p.

Robert Wiseman Dairies was one of the few strong risers, climbing 3.5 per cent to 381p.

Traders took profits in Weir Group shares, which have been rising strongly in recent weeks, but closed down 18p or 3.2 per cent at 537.5p.

Future is looking good for eye laser firm CustomVis

SMALL BUT BEAUTIFUL

CUSTOMVIS, which makes lasers used in eye surgery, yesterday revealed it had signed five new contracts in the past month.

Four of the Pulzar Z1 lasers have been sold to clinics in Iraq, while the fifth has been sold in Argentina, the group's first sale in the South American country.

One of the lasers for Iraq was paid for up-front with cash and is due to be installed before CustomVis's year end on 30 June. The other four contracts will be paid for in instalments, but with higher deposits than under previous CustomVis contracts and are expected to be installed in the first quarter of CustomVis's 2009-10 financial year.

Paul van Saarloos, chief executive of CustomVis, which has a market cap of about 3 million, said: "As we begin to demonstrate the superiority of the Pulzar Z1 against existing laser systems in the market, we are beginning to witness greater traction with our sales pipeline.

"Furthermore, we are now receiving up-front cash payments which, as well as greatly helping cash flow, further support the market leading quality of our laser."

CustomVis, which is based in Perth, Australia, floated on Aim in July 2003, having been founded by van Saarloos in 2001. The company employs about 30 staff.

Bryan Johnston of Brewin Dolphin

ONE TO WATCH

Zetar

152.5p unch

Scotsman says HOLD

ZETAR is engaged in the confectionery and snack food business. The firm operates through two divisions: confectionery makes chocolate products, sold under the company's brands, private label and licence to other chocolate manufacturers within the UK, Australasia and other export markets; and natural and premium snacks sources, processes, makes and supplies dried fruits and nuts, fruit and other snacks, primarily from the UK.

Zetar has a rather chequered recent past, but things appear now to be improving. At a recent trading update, the company confirmed sales had held up well, boosted by higher prices and the benefits of a strong Easter; revenue from continuing operations rose 10 per cent to 119 million. The company has also won significant new business in both its divisions.

The statement triggered a very sharp rally in Zetar's share price, up from 100p to present levels but still well off the peak of 600p in June 2007. There had been worries over the company's balance and also the implications of the collapse of Woolworths, which led to a 1m bad debt.

Prospects appear to be improving. In early May, the group announced the sale of its baked snacks division for some 2.7m, which will help to reduce gearing as well as extracting something of a problem child from the group's business mix. The company's balance sheet was further strengthened by a placing, in February, which raised about 2m.

Listed on Aim, Zetar's share trading market is quite tight, whilst the absence of a dividend is perhaps an obstacle. Even factoring in a cautious earnings forecast for the year ahead, the shares trade on a prospective p/e of less than five and appear cheaper than any comparable food producer.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.