FTSE’s bargain basement: Foreign buyers are snapping up valuable UK assets on the cheap, says ALEX BRUMMER
Barely a week passes when the discount on share valuations on the London Stock Exchange (LSE) doesn’t result in an overseas takeover and shrinkage in the overall size of the market.
Last week minority holders approved the £10billion sale of software pioneer Aveva to France’s Schneider Electric.
It was followed shortly afterwards by the swoop by Germany’s privately owned Saria on Scottish-based sausage skin maker Devro for £540million.
National assets: The disappearance of companies from the FTSE is one part of a broader dialogue about the relative values of the LSE and the Paris Bourse
There are strong reasons why both deals are worthy of political challenge.
The deal for Aveva opens the possibility of technology transfer at a time when the Government wants the UK to be the next Silicon Valley.
That can never happen if the tech crown jewels Arm, Ultra Electronics, Meggitt, Inmarsat and Aveva, all with deep roots here, are disposed of with cursory scrutiny.
Similarly, it is hard to think that the Scottish Parliament can view with any equanimity the loss of a valuable food supply chain group to a privately controlled German company where visibility will be negligible.
The disappearance of companies from the FTSE, which picked up great momentum in the Noughties, is just one part of a broader dialogue about the relative values of the LSE and the Paris Bourse.
Analysis by Refinitiv suggests that the data is more complex than presented.
The equity valuation of the London market may have diminished faster than that of Paris since 2020 but initial public offerings in London and share dealings easily outpace those in France.
Last year London recorded its second-largest number of flotations since 2007 and this year the LSE has seen 41 debuts with a total value of more than £1billion, against £410miliion in Paris.
A big difference between the two is the free float of shares. Paris is dominated by the luxury goods firms, such as 50 per cent Arnault family-controlled LVMH.
Across the French market the free float for bigger firms stands at 70 per cent and for smaller outfits 50 per cent.
This contrasts with the free float of 90 per cent in the City. This means London is a far more liquid market and there are fewer tightly held barriers to be overcome for foreign and private equity bidders.
When it comes to dividends, London is a big winner, with payouts in the third quarter of this year at £23.9billion – more than seven times the distribution on French stocks.
Other factors explaining France’s current paper victory include suspension from trading in London of dozens of Russian-controlled enterprises worth billions of dollars.
What is inescapable is the discount on London shares relative to other world markets. It has grown to 35 per cent since the 2016 Brexit referendum.
Buyers such as Schneider and the German Rethmann family may be paying a premium to languishing share valuations.
But they are still winning control of valuable UK assets at cyber-Monday bargain prices.
There is a tradition of predicting the worst holiday season ever for retailers.
The problems of niche players, such as Joules and, in latest trading, Superdry (down 17.2 per cent), may not reflect the broader market.
High street bellwether M&S is reasonably buoyant about prospects, contrary to suggestions of an inventory build-up. Stock levels are below pre-Covid levels.
Indeed, the latest Springboard data, measuring footfall, shows it was actually 9.3 per cent up across all UK destinations on Friday, with shopping centres reporting a 16.8 per cent boost on last year.
Sunday was also busy. As far as store visits are concerned the cost of living crisis is not making much difference as yet.
A gloomier view comes from the CBI, which says that higher prices ‘grind away at consumers’.
There is no way of wishing away 11.1 per cent inflation. But the determination of some organisations to see everything through a glass darkly is undiminished. Remember all those locked-up Covid savings?
Good to talk
Amid the union disputes, a small chink of light from BT which has reached a settlement covering all but the highest-paid.
The deal has been delivered in co-operation with the Communication Workers Union and is part of reforms which seek £3billion in cost savings by 2025.
Chief executive Phil Jansen should now focus on rolling out fibre broadband to the door.