Monthly Archives: May 2014

Stocks in Focus: Saga

Despite Europe’s strongest floatation market in seven years a number of companies recently coming to the market have struggled to gain investor interest.  Last week saw completion of the relatively high profile initial public offering (IPO) of Saga, the UK travel & insurance company focused on serving the over-50s demographic.

The offer was structured to include a direct retail offer to Saga’s customer base, so the IPO process started with the business consulting its customers, gauging whether they would be interested in buying shares and asking them to quantify how much they would be interested in purchasing.  This gave the company an indication of how much interest there was from its existing customer base without any obligation from the customers to purchase any shares.

Prior to a company floating the broker involved gives a price range within which the company will begin trading at.   Levels of demand will then typically determine where within this range shares start trading.  In the case of Sage the price range was 185p-245p and the shares ultimately floated at 185p, suggesting muted demand and implying a market capitalisation upon listing of £2.1bn.  Furthermore, the shares have endured a lacklustre performance thus far, ticking up only fractionally above the 185p listing price on Friday (their first day of trading) before starting this week at around the 181p level.  CEO Andrew Goodsell will no doubt be wanting to avoid the shares dropping too far as about 200,000 individual investors, mostly Saga customers, were allocated shares.


Stocks in Focus: BSkyB

BSkyB last week confirmed that it has opened talks on uniting European pay-TV by buying stakes in its sister companies, Sky Deutschland and Sky Italia. While still in preliminary stages, news of these discussions led to the share price opening down over 2% and the price fell back from around 890p to approximately 850p by the end of the week.

The three operators currently coordinate with each other in areas such as technology and between them have around 19m television subscribers. Combining the three could enable the expansion of their over-the-top platforms (BskyB’s NOW TV and SkyD’s Snap) to new geographies and the addition of Sky Italia would likely facilitate the negotiation of broader content deals ahead of expected EU regulation in this area.  It would also create a financially stronger player with regard to bidding for sports and entertainment rights and allow it to compete more effectively with competition from the likes of BT. Indeed, the increased expectation of competition from video streaming services (Netflix etc) may be the driver for this move, which is seen by some as a defensive one by BSkyB as opposed to an acquisition targeting new growth opportunities. The converse is that over-the-top content delivery is now a more scalable technology than it once was and that Sky can take advantage of the relatively low Pay TV penetration currently in Germany (c. 18% vs. c. 42% Italy & c. 58% UK). Whatever the reasons behind BSkyB’s motivation, any corporate activity in this area will be of interest to investors both in the UK and Europe.

Financial Companies Join Forces to Improve Service

NW Brown Group has announced an investment in NW Brown Insurance Brokers by One Broker Ltd, owner of Norwich based Knowlden Titlow Insurance Brokers (KTIB). Details of the amounts and financing have not been disclosed but it is understood that the total investment over the next few years will exceed £3 million.

NW Brown Insurance Brokers will continue to operate from its Head Office premises in Regent Street, Cambridge, under the same name, as well as maintain its presence in Norwich.

Commenting on the agreement Alan Kefford, Chairman of NW Brown Group said “This final step is the logical culmination of a long process of co-operation. We bought the KTIB Financial Services operation three years ago and we have co-operated for years in a joint operation called the Eastern Alliance and in other ways, including systems development.  Whilst our position in East Anglia as a top quality Financial Services operation is strong I am delighted that we will now have access to better specialist services for our clients via KTIB. We are always seeking ways of improving service for existing clients and of introducing new clients for whom we can provide that high level of service and this closer partnership gives the prospect of doing both for not only the Insurance Broking but also the Investment business.

NW Brown Group chief executive Marcus Johnson explained that modern-day insurance broking consists of highly specialist and niche businesses. KTIB’s expertise includes its widely acclaimed Synergy facility for small business insurance solutions whilst fleet owners and motor cyclists will also find specialist schemes which cater exclusively for them. These will lead growth in the Cambridge office. NW Brown Insurance Brokers’ experience in landlord and tenant insurance from the Cambridge market has been transferred to Norfolk, where an increasing market share is being built on work of recent years in developing economic and innovative solutions for property owners.

Robin Plaster, the new Managing Director of NW Brown Insurance Brokers and owner of One Broker Ltd said “We have both built our firms on high quality advice and efficient execution. I look forward to working with our new colleagues to grow our business in what is perhaps the most exciting area of the Country intellectually, technologically and financially. Our insurance solutions have applications in all areas and I look forward to working with Phil and his team to develop our strong presence in East Anglia. We are confident that the combined skill set of the two firms will make us a recognised leader in our chosen fields. ”

Robin Plaster has become Managing Director of NW Brown Insurance Brokers Limited and Phil Thorpe will join the Board of KTIB. Phil will continue to have responsibility for running the operation on a day to day basis, along with fellow Directors Shaun Lenton and Richard Rampley. In addition John Knowlden will join the board of NW Brown Insurance Brokers.

NW Brown Insurance Brokers is best known for its expertise in the specialist sectors of Education, where clients include colleges and schools, Technology where many Cambridge companies use their help, Financial Liabilities, protecting many local professionals, and Landlord and Tenants (including Listed Buildings) where most larger local property managers take advantage of their schemes.

Marcus Johnson, right, Chief Executive of  NW Brown Group with Robin Plaster, managing director of Knowlden Titlow Insurance Brokers outside Pembroke House, NW Brown’s Norwich office.

Marcus Johnson, right, Chief Executive of NW Brown Group with Robin Plaster, managing director of Knowlden Titlow Insurance Brokers outside Pembroke House, NW Brown’s Norwich office.

The difference between the terms tax evasion and tax avoidance

Tax evasion is escaping payment by illegal means. This is obviously unlawful and is usually a criminal offence and is subject to a prison term or a fine if found guilty.

An example of this would be where an individual simply purposely does not declare taxable income on their tax return.

Tax avoidance on the other hand is perfectly legal within the ambit of the law and is the legal use of the tax system to reduce taxes.

This can take many many different forms.

Typical examples are where an individual changes their tax residence to a country which has a lower income tax rate An individual might also want to transfer assets to a company, which the individual indirectly owns or directly owns and this would also be a way of minimising the tax bill. A lot of business transactions are also set up in a way so as to avoid paying too much tax.

There have been some high profile celebrities such as Gary Barlow and Jimmy Carr who have recently been exposed as participating in tax avoidance schemes which have subsequently been deemed to be unlawful. No doubt these individuals had advice but the general rule is that if it involves a transaction effected via a series of steps, you need to look at the effect of the whole series and not at the tax position of each individual step.

There is also another term which is used, tax mitigation.

This is avoiding tax legally, but it’s more in the context of typical family tax planning where, for example, you move assets to your spouse in order to minimise your personal tax bill and make use of their tax allowances, or the use of HMRC approved shelters such as pensions, ISAs, VCTs and EIS.

So bear in mind that there is often a fine line between avoiding tax which is legal and evading tax, which is illegal.

Stocks in Focus: British Empire Securities

This week I am looking at British Empire Securities, an investment trust that aims to generate capital growth by investing in the shares of global companies. The company has been on the radar of investment managers and analysts following a period of underperformance relative to its peers.  Indeed, over the past 5 years it has returned 59% in capital terms whilst the IMA Global sector benchmark has increased in value by 79%. Consequently, British Empire is trading at a discount of 13% to its share price at a time when many investment trusts are trading on a premium or close to the value of their underlying assets (NAV).

In British Empire’s case, the five year returns have been subdued due to it having had a high near-cash weighting (in the form of two government bonds representing about 10% of its NAV) during a period in which the equity market has enjoyed a strong surge following the financial crisis. Interestingly, the second of these bonds matured in March 2014, freeing up a significant amount of cash for John Pennink and Joe Bauernfreund, who have been running British Empire since 2001 and January 2013 respectively, to reinvest.  In the meantime recent performance has picked up and it remains one of the few large liquid funds available on a mid-teens discount to NAV.  Furthermore, the underlying investment portfolio reportedly trades at a 25% discount to NAV, which would suggest a look-through discount of about 35%.

Stocks in Focus: AstraZeneca

Last week I wrote about the recent mergers and acquisitions (M&A) activity witnessed in the pharmaceutical sector.   While the GlaxoSmithKline deal with Novartis has been agreed and both companies are working through the mechanics of the deal, the bid from US-based Pfizer for AstraZeneca rumbles on.

The latest bid from Pfizer values the company at £63.1bn, or approximately £50 per share. This represents 32% premium to the closing price of £37.82 on April 17, the last day trading day before reports of the bid.  However the AstraZeneca board have rejected this offer and urged shareholders that this undervalues the pipeline business.  This is the second bid to be rejected after AstraZeneca turned down an informal bid of £46.61 per share.  Pfizer still have the option of mounting a hostile takeover, and could go directly to the AstraZeneca shareholders, although the company has made it clear they would rather negotiate a deal with AstraZeneca’s board.

There is, however, plenty of political resistance from both sides of the Atlantic.  From a UK perspective the concern is that Pfizer would want to squeeze savings out of the significant research operations AstraZeneca has based in the UK.  Therefore it is not surprising that a number of politicians and senior figures have shown interest and concerns over this potential deal.  In an open letter to David Cameron, Pfizer makes a number of commitments to keep a large presence in the UK, however there are no commitments on jobs.  AstraZeneca currently employs 6,700 people in the UK and there have been talks between senior politicians and Pfizer to ensure British jobs are protected.