London Advisory Partners

08/09/2022

24/03/2020

I want to personally thank all my colleagues who are still working very hard in very challenging circumstances, to serve our clients, who are endeavouring to support our communities and take care of one another.

We expect the days, weeks and months ahead to be testing. We know that pulling together as a team to support each other will help us to overcome many of the challenges yet to come and we are diligently putting plans in place to ensure business continuity to meet the changing demands of the impact of this pandemic.”

07/02/2015

**BT finalises EE deal**

BT has today announced the final terms of its acquisition of the EE mobile network. It is paying an Enterprise Value (EV) of £12.5bn for the business, which has a total of 31 million mobile customers. The sellers, Deutsche Telekom (DT) and Orange are taking the majority of the consideration in stock. DT will end up with a 12% stake in BT, Orange will have a 4% stake.

This reduces the amount of cash that BT must put up as part of the deal, sparing shareholders from having to participate in a rights issue. Instead, BT will arrange a placing of £1bn of new shares. This will most likely be an institutional deal, with no opportunity for retail investors to participate.
BT have identified cost and capex synergies of £360m, achievable after four years, which BT believe have a net present value of £3.0bn.

Revenue synergies, from offering a broader product suite to the clientele are expected to deliver a net present value of £1.6bn. The transaction values EE at a multiple of 6.0x 2014 EBITDA and delivers an operating Free Cash Flow yield of just over 10%, taking these synergies into account. Immediately accretive to BT's free cash flow, the deal is also expected to be accretive to Adjusted EPS in the second full year post acquisition.

*View of the acquisition*

We were already taking a positive view of BT's prospects, in part because of the benefits we thought this deal could bring them. The details announced today reinforce our stance. By persuading the vendors to take payment largely in stock, BT have saved shareholders a rights issue. The free cash flow that EE will bring improves BT's overall financial strength, as they allude to when they talk about their credit rating being at least maintained, following the transaction.

Over at Sky plc headquarters, they are probably feeling a little nervous right now. BT has just boosted its financial position, as well as its strategic position, just at the time when bidding for the Premier League football rights is under way. It would be a major upset for Sky if they lost their grip on the Premiership and potentially a coup for BT. With 31m new customers joining BT via EE, their opportunity to recover the cost of a winning bid is surely improving.

BT has to get the competition authorities onside for this deal; we doubt it would have come this far, were they not confident of winning those arguments. Then comes the integration of EE. Those fortunate enough never to have had an issue with their own BT bill, will feel more relaxed about that process going smoothly than those who have. That aside though, BT look to have paid a very fair price to gain leadership of the UK mobile sector. They have financed it conservatively, in a way that strengthens their ability to compete elsewhere and improved their free cash flow in the process.

*Experts view*

BT offers investors a combination of robust cash flow, strong dividend growth and we think, an attractive valuation. Presently there is a lot going on in BT's world; it is negotiating to acquire the UK's leading mobile operator, EE at the same time as the bidding for the next round of Premier League broadcasting rights is underway. With the group gaining a high share of new broadband customers and potentially adding leadership in the mobile market to its fixed line and broadband positions, BT is tightening its grip on the UK media and communications markets.

The stock is currently trading on a current year Price to Earnings ratio of 14.3x and a dividend yield (not guaranteed) of 3.0% according to the consensus of market analysts. Profits this year are expected to grow by over 20% and then by circa 8% compound for the next few years. The dividend was comfortably covered last year, some 2.6x, leaving plenty of headroom for that earnings growth to be accompanied by an increased payment to shareholders over the next few years.

The acquisition of EE may see BT raise new funds from shareholders; the company flagged this when they announced that the deal was under negotiation. If BT wins new rights packages in the Premiership auction, these are unlikely to be cheap, so there are plenty of calls on BT's cash flow presently. But with the group having generated free cash flow of over £1.5bn so far this year, we think BT has plenty of scope to keep rewarding shareholders. The dividend costs the group less than a billion pounds each year.

What really attracts us to BT though is the strength of the position it is building; we think EE was bought well, at a time when Telefonica was trying to offload O₂ back onto its former parent, creating a Dutch auction of sorts. Once done, BT will lead all of the key market categories bar TV. Landlines, mobiles, and broadband will all be led by BT and if it can secure its position in TV with more acquisitions of sporting rights, it will be able to offer a comprehensive "quad-play" deal to consumers. Historically, telephony prices have tended to fall over time, but Sports TV goes up in price. BT will be hoping that marketing a full package of media and communications services, including pay TV will allow a more robust price to be charged for overall bundle than if they were sold separately.

11/09/2014

I like the look of Apple's new phones – but are the shares worth buying too?

With era-defining gadgets from the iPod to the iPad under its belt, any new product launch from Apple (Nasdaq: AAPL) is always big news in the tech world.

Now Apple has finally launched its long-awaited watch – its move into 'wearable tech'. Plus two new iPhones too.

Some critics aren't impressed. They complain that Apple hasn't delivered enough innovation.

But that doesn't worry me. I think the new products look great, and I reckon they will boost Apple's sales next year.

In fact, even if Apple's watch is a total flop, the new phones on their own are probably strong enough to ensure that the company continues to prosper.

Trouble is, Apple's share price has risen a fair way since June, probably in anticipation of this week's launch.

So is all the good news in the share price already? Or are the shares worth buying now?

10/03/2014

Latin America looks cheap - here's how to take advantage!

It’s been a grim few years for those investing in Latin America.

Many people are blaming the pain in emerging markets largely on the Federal Reserve’s plans to cut back on quantitative easing (the ‘taper’). But the region’s woes go back way further than that.

In fact, the MSCI Latin American Emerging Market Index peaked at the end of 2010, well before the taper was even a twinkle in Ben Bernanke’s eyes.

The real problem has been fear over the knock-on impact from a slowing Chinese economy. China is trying to create a more consumer-led economy. That implies lower demand for agricultural imports and other raw materials. That’s bad news for most Latin American nations, which still depend heavily on selling their resources overseas.

But with the region as a whole losing money for investors for two out of the last three years, it’s starting to look like a good contrarian bet.

04/03/2014

Market nerves heightened as Ukraine crisis deepens.

· German corporates offer strong investment opportunities.

· US economic data reflects the extent of America’s ‘big freeze’.

· The week brings the fifth anniversary of the 0.5% UK bank base rate.

10/02/2014

The British economy looks stronger by the day.

Growth forecasts are being revised upwards while inflation remains low.

That’s practically the holy grail for UK policymakers. A low-inflation British boom!

You see, UK economic recoveries traditionally hit the wall because inflation takes off. Then interest rates have to rise to choke off inflation.

So George Osborne must be delighted. Can he now sustain this low-inflation recovery?

Sadly, I fear not. The UK still has some serious structural problems. You can still make money from Britain’s pre-election rebound – but you have to be careful…

31/12/2013

Wishing you a Happy New Year - On behalf of everyone at London Advisory Partners Ltd, we'd like to thank you for your custom in 2013 and wish you all the best for 2014.

15/10/2013

**Should you sell your Royal Mail shares?**

There's more to Royal Mail than just postage stamps

For now, let's assume that the share price sticks at around 455p. That values Royal Mail at £4.55bn with a dividend yield of 4.4%.

At first glance, that's not a bad yield for a company that operates in a growth sector – parcels.

But as I said a month ago, Royal Mail also operates in a rapidly declining market – letters. So the big question is whether Royal Mail's parcels business can grow rapidly enough to offset the decline on the letters side.

Remember also that Royal Mail needs to invest in new equipment for its parcels business, and there's a good chance that postal workers will go on strike later this month. What's more, competition in the parcels market is expected to increase.

So there's actually quite a lot of risk here. If we're just looking at the trading business, I don't think that a 4.4% yield is enough to compensate me for the level of risk involved.

However, there's one other issue to bear in mind. Royal Mail is more than just a trading business. It also owns a fair bit of property, some of which is surplus to requirements.

Royal Mail's offer prospectus highlighted three sites in London that could be sold off, including an eight-acre site in Islington called Mount Pleasant.

The Labour party has suggested that the value of these sites could be huge – possibly as much as £1bn for the Mount Pleasant site, and £500m for another London site.

Wow. If Labour's valuations are correct, Royal Mail looks cheap at even £4.55bn!

But before you get too carried away, Royal Mail said in its prospectus that the total freehold property estate - comprising 1,000 properties in all - is worth only £793m.

In other words, it reckons that its total property portfolio is only worth about half as much as the Labour party says just two of its properties are worth.

So who do you believe? Royal Mail or Labour?

Don't let your investing be guided by political propaganda

Well, I suspect that the figure in the prospectus may well be on the low side. As a relatively illiquid asset, property is not easy to 'mark-to-market'. And given the buoyant London market, Royal Mail's sites could easily be worth more than the company has given it credit for.

However, I also think it would be very risky to make an investment decision on the back of what is basically Labour party propaganda. (I hasten to add, I'd say the same for any other political party's propaganda.)

So as far as I'm concerned, the prudent approach is to ignore the property issue and just value Royal Mail on the basis of its trading performance.

Given that the risk of things going wrong at Royal Mail is quite high, I think it's reasonable to expect a pretty chunky dividend as a reward for taking the risk.

So, for me, the minimum acceptable yield is 6%, which works out a share price of 333p. That's just above the 330p price at which the government sold its shares. So I'd sell.

06/08/2013

**Britain’s favourite subject**

Data released by Knight Frank, the London property agent, revealed that 73% of new home sales in inner London during 2012 were to foreign buyers, and more than 50% of overall sales were to buyers from Singapore, Hong Kong, China and Malaysia. Despite stamp duty levels for properties over £2 million rising from 5% to 7%, viewings of such houses are up 15%. Many agents now do not advertise such properties to UK buyers, preferring to focus on the increased demand overseas.

23/07/2013

- An adventurous play on the US housing recovery
- Detroit goes bust – is Europe next?
- A great time to own land in Argentina
- Yesterday’s close: FTSE 100 down 0.1% to 6,623...
- Gold up 3.07% to $1,335.88/oz... £/$ - 1.5360

02/07/2013

This week’s Bulletin which contains the following points:

- Central bankers are confronting market reactions to China’s liquidity challenge and the US Fed’s intentions.

- Further monetary action is expected from the new Bank of England governor, Mark Carney, to help the UK economy.

- Gold has lost its lustre with its 12-year bull-run now a distant glimmer as the US dollar strengthens and inflation expectations decline.

- Markets mid-year seem to have stopped to breathe and attune to US Fed chairman Ben Bernanke’s QE message.