We were smarter than we knew. A week later Macquarie, the acquisitive Australian bank that has led the infrastructure rush, paid Stagecoach £264m for its London bus operations.
It is nice to be proved right, but, welcome as the deal was, it raises a question about the firm’s future. Stripped of London buses and having sold most of its foreign transport empire in the past two years, that future now rides on the government’s decision on Stagecoach’s South West Trains franchise.
South West is the busiest train company in the country in terms of passenger journeys, running in and out of London’s Waterloo station and carrying thousands of City staff to and from work every day. It was one of the first train companies to be sold in the break-up of British Rail, and has proved to be one of the most lucrative of all franchises — and a cornerstone of the Stagecoach group.
But now it is up for grabs, with Stagecoach heading a field of bidders to run it for the next seven years. A decision is expected late next month or early in October.
Stagecoach is tipped to win but if it doesn’t, you have to ask where the company goes next. Don’t sell the shares just yet, however — the company is now nearly free of borrowings, thanks to the London buses deal, and most analysts expect a hefty return of capital to shareholders later this year.
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MFI
IN its time, MFI has been the butt of more jokes than Des O’Connor. Must Find the Instructions or Made For Idiots are just two of the soubriquets — and no matter how hard it has tried, the company,despite still having a large share of the British kitchen market, has struggled to escape its past. Now Matthew Ingle, the group’s chief executive, has come up with a neat solution: sell it for £1.
As the company revealed last week, it is in advanced talks to give the business away to Merchant Equity Partners (MEP) for £1 and an additional £50m dowry to help the buyer who will also pledge to match this payment. This deal could be finalised in the next two weeks, but the big question for MFI investors is what their new company will look like.
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The market appears to be fairly positive about the disposal and the share price inched higher last week to close at 89p, valuing the company at £558m. Ingle will be left running the profitable Howden Joinery business, which has some 200 stores and makes £100m a year. He will also still own the manufacturing business that makes the box carcasses for MFI’s kitchens and bedrooms. This is also profitable and there will be a supply agreement with MEP guaranteeing future revenue.
Retail analysts at Seymour Pierce say that on its own Howden could be worth 120p, so as far as investors are concerned there still appears to be something left in the price. However, the broker warns that if the negotiations break down, the shares could drift back to 70p.
Last year MFI had the dubious honour of being the market’s most shorted stock, but if the disposal is agreed, Ingle will no doubt change the group’s name.
The retail operation, which only a few years ago was worth £1 billion, will then be nursed back to health. Henry Jackson, the investment banker who set up MEP, is not known for wasting money and it will be interesting to hear his strategy. The retail business has floored many who went before him.