The rate was estimated at around £30bn. The area would be around £35bn. And given the £10.5bn of borrowing Haleon has taken on, a staggering £39.5bn would be needed to match the £50bn Unilever offered in January. For investors who intend to stick around for decades (ie, not GSK or co-rider Pfizer, who want to gradually “fund” their shares) the initial valuation matters little. But it’s also true that a six-month roadshow didn’t exactly conjure up images of Haleon as a rough gem, tucked away in the back of GSK’s drug cupboard, just waiting to shine in released form. Instead, investors have taken the boardroom promise of between 4% and 6% annual sales growth in the mid-range with a grain of salt. They can understand how the 4% happens, given that the unit has pushed above that rate for the past two years, albeit with a boost from the launch of an OTC form of Voltaren, a pain reliever. But an overwhelming 6% will believe it when they see it. Not many global healthcare businesses operate at this pace for long. Meanwhile, Unilever shareholders may feel entitled to stage a mini-revolt to prevent their company from adding a few more billions to its (rejected) £50bn bid price. Haleon looks a solid cash-generating business and a worthy addition to the ranks of the top 20 stocks in the FTSE 100. But it has yet to show it deserves to be rated as anything other than a defensive performer.
What exactly did Deliveroo shareholders order?
Terrible news for Deliveroo shareholders, eh? Well, sort of. Growth in app orders has slowed – to just 2% in the second quarter of this year, compared with 12% in the first – but the loss-making food delivery business will make a smaller-than-expected loss this year. Shares rose 7% on this mixed news. The logic of the stock market was not as perverse as it seemed at first glance. Against the backdrop of a 75% drop in share price since last year’s overhyped spread, an increase in orders of any size hardly counts as reassuring. In a cost-of-living squeeze in which a takeaway is an obvious household saver, the slowdown could have been worse (and may yet be in the future). And maintaining full-year operating margin guidance within the previously advertised range of -1.5% to -1.8% should not be overlooked. It suggests Deliveroo has found few economies and is adapting to tougher trading conditions. Zoom out to the big picture, however, and little has really changed. The long-term financials of the delivery game are still anyone’s guess, and a mighty £3.56bn “gross transaction value” in six months has yet to turn a profit in Deliveroo’s case. Competition is intense and the consolidation scenario is uncertain. This is yet another company whose £1.6 billion market value is largely due to the cash it raised in a spin-off. The market remains reasonably cautious. In the round, a cost of living crisis cannot be a good development.
Direct Line joins the stack of auto insurers
Another day, another profit warning from a car insurer. This time, it was Direct Line that told a sad tale of serious price inflation in the claims department. Crucial auto parts have been delayed due to malfunctioning supply chains, repairs are taking longer, and customers are driving around in polite vehicles for weeks at insurers’ expense. All of which confirms that Saber Insurance, the specialist motor insurer that warned on profits last week, was on the money when it said the problems are industry-wide and have not been covered by rising premiums. Share prices have fallen across the industry. Saber is down 44% since the warning. Direct Line is 18% off over the same period. And Admiral, from which a profit warning is surely only a matter of time, is a quarter lower. This farce for shareholders across the industry does not reflect well on the collective ability of City analysts to sniff out trouble. Aren’t these experts going to track used car prices, garage repair rates and insurance premiums so the rest of us don’t have to? As the companies tell it, most of this stuff has been an open trade secret for weeks.
