BUSINESS LIVE: Thames Water plots £1.1bn extra green spend; Asda profits soar; Mobico suffers rail delays

Richard Hunter, head of markets at Interactive Investor:

‘Technology stocks were in the firing line at the end of a testing week, with some of the recent froth being blown off after what has been a stellar rise for those stocks which have an AI slant.

‘Given its lesser reliance on tech stocks, the FTSE100 powered ahead in early exchanges, in an echo of the market moves of 2022 when high growth shares were eschewed in favour of more stable, defensive and value stocks, all of which are to be found in abundance in the UK’s premier index.

‘Meanwhile, the week ahead is one which is littered with any number of corporate earnings, not least of which are first quarter numbers from Lloyds Banking, Barclays and NatWest. The recent pick up of corporate activity as reported by the likes of Morgan Stanley and Goldman Sachs bodes well for Barclays in its investment banking arm, while the general pressure that was heaped upon the US banks in terms of Net Interest Income could also feature on this side of the pond.

‘However, the strength of the UK banking sector could also result in further focus on shareholder returns, with the possibility of higher dividend payments and share buybacks likely to underpin sentiment if announced. There could also be some kind of update on the rumoured NatWest offer to retail investors, which had previously been rumoured to be taking place in the summer.

‘Elsewhere, the retail and housebuilding sectors will also be scrutinised in what has been a patchy period of late for both, with updates from Primark owner Associated British Foods, Persimmon and Taylor Wimpey.

‘In the meantime, the retail sector more broadly soared in early trade after a raft of broker upgrades to the likes of Marks & Spencer, Sainsbury, B&M European and Next, with Ocado also rising by association.’

The chief executive of Tesco is in line for a record-breaking £10m pay day this year.

In the largest amount ever awarded to a British supermarket boss, Ken Murphy will take home a salary of £1.4m and performance-linked bonuses of £8.6m.

Mobico made another annual loss last year as ‘industry wide labour scarcity, lower productivity, market volatility in energy prices and persistent high inflation’ left it facing a £99million onerous contract provision charge related to its German rail business.

The National Express-owner’s statutory operating loss narrowed from £173.5million in 2022 to £21.4million, with improved sales also offset by £30million in restructuring costs.

Revenues were up 12.2 per cent for the year, thanks to passenger volume improvement, but adjusted operating profits fell from £197.3million to £168.6million.

Mobico said it expects to post an adjusted operating profit of £185million to £205million for 2024.

Boss Ignacio Garat said: ‘Our 2023 results are below the expectations we set ourselves at the beginning of the year.

‘The delays  due to the additional work relating to the German Rail business was regrettable but it is now concluded.

‘Although Group revenue growth was encouraging, driven by passenger demand and actions taken to recover inflation, this has not translated into an improvement in reported profitability.’

Asda profits soared by 24 per cent last year, reflecting a 7.1 per cent rise in total sales, as Britain’s third biggest supermarket group also slashed its debt pile.

Asda, owned by brothers Zuber and Mohsin Issa and private equity firm TDR Capital, said 2023 adjusted EBITDA after rent, its preferred profit measure, was just shy of £1.1billion, on total sales, excluding fuel, of £21.9billion.

Like-for-like sales rose 5.4 per cent.

Monthly industry data has, however, shown Asda consistently underperforming its bigger rivals – market leader Tesco and No. 2 Sainsbury’s.

Data from market researcher Kantar, published last month, showed Asda had a 13.8 per cent share of Britain’s grocery market, down 50 basis points on the year.

Asda has been burdened by finance costs due to high levels of debt since the Issas and TDR bought the business from Walmart in a £6.8billion deal in 2020 which left the US giant retaining a 10 per cent stake.

Net debt at the end of 2023 was £3.8billion, net of more than £1billion of cash on the balance sheet.

It said more than 90 per cent of this debt is secured on fixed rates of interest and it is ‘fully committed to further deleveraging’.

Royal Mail will hold fresh talks with investors this week as a billionaire dubbed the Czech Sphinx plots another bid for the 500-year-old postal service.

The top brass at Royal Mail owner International Distribution’s Service are understood to be in regular discussions about the approach from billionaire Daniel Kretinsky and have been holding talks with shareholders.

IDS will be keen to canvas the opinion of other investors ahead of any further offers.

Thames Water has proposed another £1.1billion of environmental project spending over the next five years in efforts to win the support of regulators, as it fights for survival amid a £16billion debt pile and the looming threat of nationalisation.

The provider was thrown into crisis last month when an existing business plan was branded ‘uninvestible’ by its owners.

The new plan will see Thames Water, which supplies about a quarter of the British population, said the rise in expenditure would go on projects benefiting the environment and would come without a further increase in customer bills than the increase already set out.

While that may help win over the regulator Ofwat, the company also needs to win support from its shareholders, who in March refused to invest a £500million equity lifeline.

Thames Water boss Chris Weston said the updated business plan focused on its customers’ priorities.

‘We will continue to discuss this with our regulators and stakeholders,’ he said added.