Comment: Good industrial news amid Grangemouth gloom

Martin Flanagan. Picture: Adrian Lourie
Martin Flanagan. Picture: Adrian Lourie
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MANUFACTURERS north and south of the Border are increasingly optimistic. Indeed, the CBI employers’ lobby group’s latest quarterly industrial trends survey says optimism among Britain’s manufacturers has risen at its fastest in over three years.

It is more good news on the economic front. Orders and output grew steadily in the three months to October, and the better sentiment has been fuelled by both rising domestic orders and perceived better export prospects.

It seems pretty likely some of this better mood has to do with the apparent passing of the worst of the fiscal crisis in the eurozone – the destination for 40 per cent of Britain’s exports.

Admittedly, manufacturing is not the economic powerhouse for us it once was. What could be quaintly called “making things”, as opposed to selling cafe lattes and electronic tablets, is now 12 per cent of British GDP against not far off a third in the 1970s.

But manufacturing is still a significant slice of our economic well-being – bigger than the retail, financial and construction sectors, and vastly more influential than fishing and agriculture combined.

The CBI says firms are broadly sanguine about factory gate inflationary pressures; prices are largely holding steady and unit costs are flat.

There’s also a vaguely atavistic feelgood factor when our factories are churning out successfully: evidence that the economic recovery is not just powered by the dominant services sector, but is widening and deepening.

It will strengthen the Bank of England’s opinion this week that growth has been greater in the second half of 2013 than was earlier thought.

If management and the chastened Unite trade union can hammer out a deal to reopen the closed Grangemouth petrochemicals plant, pivotal to the Scottish economy, in return for workers accepting the owners’ survival plan, then the better sentiment around the whole sector will be reinforced even more.

Swip deal could be long-term win for Aberdeen

A NEAR-6 per cent jump in Aberdeen Asset Management’s share price after it disclosured that it may buy Scottish Widows Investment Partnership (Swip) from Lloyds Banking Group suggests the market is supportive.

But there are reservations. Aberdeen has reinvented itself as a “safe” dividend yield-capital returns stock in recent years, and this deal looks on the surface a return to a more volatile high-risk, high-return, acquisition-driven corporate profile.

Swip would be no bolt-on acquisition, either. Aberdeen has £200 billion of funds under management, its would-be target has £146bn.

Even with Aberdeen’s pretty impressive record in integrating acquisitions under boss Martin Gilbert, any significant purchase deflects management attention in the short-term at the least. That may weigh on the stock for a time if the deal for Swip goes through.

On the plus side, Aberdeen reckons Swip can add scale and diversity to its product range – a big plus in financial markets, particularly if times turn tougher, which cyclically is inevitable.

If the price paid in the short term is a more modestly incremental dividend policy by Aberdeen, and more brake being applied to share buybacks, it may still be worth it over the medium term if a bigger, more-resilient group is created.

It is a close call, but there is enough rationale for this move to suggest Aberdeen deserves the benefit of the doubt.