Scrutineer: Market's plug pulled

Published on Thursday 25 June 2009 21:54

DSGI 23.75p unchanged Standard Chartered 1,167p -28p

NOBODY can have been wrongfooted by electricals giant DSG International's continuing residence in the red in its latest trading year. The owner of Currys and PC World is in a discretionary purchase market that is bound to be especially affected by an economic downturn.

You do not put off buying food, clothes for the kids or other inviolable items in a recession, but you might well decide you will forgo a flat-screen high-def TV, new computer or mobile phone upgrade.

It appeared that the stock market had tumbled to this conclusion quickly as far as DSG was concerned, and a recent renewal of optimisim now looks premature.

Shares in the group have lost 34 percent of their value over the past year, having undershot the DJ Stoxx European retail index by 23 per cent.

But the stock had risen 50 per cent in the last three months on recovery hopes that now look illusory after yesterday's announcement of continuing significant losses at DSG and very cautious outlook from the company.

There are some grounds for thinking the nadir for the firm has passed. The recent rights issue bolsters DSG's balance sheet and early signs are that the store-refurbishment programme is successful.

But the group is particularly vulnerable to any lengthy economic downturn.

Apart from continued depressed trading at the company, particularly in mainland Europe, the heat is also being turned up for DSG by the entry of US electronics giant Best Buy into the European market as a partner of Carphone Warehouse.

DSG's capital expenditure has been slashed, and the divi passed. The company has been battening down the hatches for a couple of years now. It looks like there is more battening to come.

BP HAS taken the scenic route in getting a successor as chairman to Sir Peter Sutherland.

His departure has been delayed by the fallout from former chief executive Lord Browne's wish to carry on beyond normal retirement age, and the recent withdrawal of other candidates for the chairman's post, including Rio Tinto's then chairman Paul Skinner.

But BP's announced appointment of Carl-Henric Svanberg, the chief executive of Swedish telecoms group Ericsson, as Sutherland's successor from next January might turn out pretty good.

Svanberg does not have an oil background, but as his primary job is to manage the board that is not a major issue.

It is often said that a chairman from outside the industry of the company he chairs is an advantage in that he brings outside perspective, even left-field thinking, to the role.

And there are closer links between the oil and telecoms industries than might be thought.

Governments are big buyers of telecoms equipment, while regulatory issues are also a big driver for the sector. Svanberg will therefore have good contacts and antennae in this area. That should help BP in its negotiations with governments that also award oil and gas licences, and decide local taxes on oil earnings.

The telecoms industry has been moving into emerging markets in recent years as virtual saturation has been reached for mobile phones in mature markets. That is also the strategic thrust of leading oil companies these days. Is it purely coincidence that BP's great rival, Royal Dutch Shell, also looked to the telecoms sector when its chairmanship came up for grabs, appointing Nokia chief executive Jorma Ollila in 2006?

Whatever, BP will have been relieved to have put the chairmanship issue to bed, if only to clear the decks for the continuing costs-and-safety focus of chief executive Tony Hayward's attempt to restore the image of the company after a series of public relations disasters in the latter part of Lord Browne's reign.

With the problems at the group's Russian joint venture also seemingly quietened down (or just in remission?), is BP entering a period of corporate clarity and stability?

THE benefits of strong Asian exposure in these difficult times has again been underlined, this time with Standard Chartered reporting record income and profit in the year's first five months.

Standard, which derives two thirds of its revenue from Asia, said income growth had been driven by a robust performance in wholesale banking, partly offset by lower income in consumer banking.

I have said before that Standard has proven one of the surer-footed players in the banking sector's collapse. Further evidence.