Scrutineer: National Express defiant

Published on Friday 28 August 2009 22:15

National Express 398.4p -10.2p Johnston Press 38p +3.25p

A FEW weeks ago National Express looked like it had reached the end of the road. Its loss-making Edinburgh to London rail franchise was ignominiously handed back to the government after it admitted it could not afford the repayments, prompting a number of rivals to position themselves as potential bidders.

First Group was the first to show interest then back off, fearing that the government would also strip National Express of its two other rail franchises.

Stagecoach was thought to be interested in cherry-picking the group in a deal with CVC Capital Partners and the Spanish Cosmen family which holds an 18.5 per cent stake.

But National Express is fighting back. Yesterday it rejected a revised offer from the Cosmen family and CVC, on the usual grounds that it undervalued the company. On the face of it, this was a routine attempt at extracting a higher price. But National Express executive chairman John Devaney sounded determined to pursue an independent future.

The shares were down 2.5 per cent at 398.4p on the London Stock Exchange, well below the consortium's offer price of 450p per share, essentially because other shareholders have said they will side with National Express and continue to back the management's alternative plans for a rights issue.

Shareholders are unhappy at certain conditions in the consortium bid, which they say adds to uncertainty already surrounding the company. Despite claims that its strategy is robust and clear, it is still burdened with a 1.2 billion debt pile and questions over key elements of its portfolio are adding to the quandary for investors.

Newspapers optimistic

THE newspaper industry is refusing to submit to the pressures of a declining advertising market and migration to the internet and it seems the banks and investors are willing to give the sector the benefit of the doubt.

Johnston Press, owner of The Scotsman, has secured new terms with its lenders and Independent News & Media, the Irish owner of the Independent, is optimistic it will achieve a similar result. However, the deals are coming at a high price. Johnston Press will see the interest on the new 424m debt facility double, though chief executive John Fry says this presents no problem for the company. Half-year pre-tax profits fell 56 per cent and there will be no dividend until the debt is significantly reduced. But the City responded positively to the refinancing agreement and repayment of 52.8m of debt. The shares rose by 9.35 per cent.

Investment is now going ahead as the group commits to titles it cannot sell in the current market, even if it was minded to do so.

Revenues continue to fall across the sector, though since January there have been signs of a slowdown in the rate of decline. As the economy improves there is talk of a recovery in advertising.

One key issue eluding the industry is how to make money from the internet, which otherwise threatens to cannibalise printed news. News International boss Rupert Murdoch's recent moves towards charging for internet content have not met with universal support, but may signal a turning point in a sector that knows it cannot turn back the clock.

Galvan Research believes that, along with others in the advertising sector, Johnston Press has been oversold. At 34.75p, it says the shares have had a good run up to the results, but with the additional operating efficiencies set to kick in during the second half it expects shares to remain upwardly mobile and recommends buying up to 45p.

Pressure on Lloyds chief

MORE rumours emerged yesterday suggesting that pressure remains on Lloyds Banking Group chief executive Eric Daniels, this time from shareholders who, we are told, insist that new chairman Sir Win Bischoff clears out the board. Murmurings of this kind are unsettling for all connected with Lloyds, and emphasise the need to resolve its funding issues quickly.

The bank is determined to reduce its exposure to the government's Asset Protection Scheme but the alternative means of raising money from key shareholders is proving a problem.

They want to exact a high price for backing such a plan, and that comes largely in the shape of sacrificial lambs. They don't come much meatier than Daniels himself and Bischoff's apparent ambivalence towards the chief executive has only served to fuel speculation that he'll be targeted.