We are living in extraordinary times

Such is the climate of fear that investors have abandoned normal evaluation of a company’s profitability and its prospects. The selling vortex that has hit the world’s stock markets is driven by how much debt has to be repaid and when, and who is on the shareholder register.

Take Mitchells & Butlers, the former Bass managed pub chain. Until Wednesday financier Robert Tchenguiz held a 25% stake, which he had lodged with Icelandic bank Kaupthing as collateral against loans. As all was collapsing around it, Kaupthing demand repayment, Tchenguiz failed to raise the cash and so in an attempt to get its hands on cash before being nationalised on Thursday, the bank dumped the shares into an already severely depressed market.

They were snapped up by Joe Lewis, a Bahamas resident Briton, at a bargain 130p each. That compares very favourably (for Lewis) with the average 500p paid by Tchenguiz and the 190p price prevailing earlier this week because M&B is one of the better-placed pub operators. Yet other shareholders using normal evaluation metrics have seen their holdings hammered.

The same can be said of J Sainsbury. On the very same day it announced encouraging results, but its shares lost 15% of their value to 267p. The reason? Tchenguiz’s stake in the supermarket group was rumoured to be on offer at 250p per share.  

But no matter how you view yesterday’s figures from C&C, the Irish producer of Magners cider, they were appalling. Sales value slumped 13% in the six months to the end of August, and even allowing for the rotten summer, C&C itself admitted that it should have been better.

In Great Britain, Magners’ main market, the on-trade cider market grew by 1% in the five months to 31 July 2008 compared with the same period last year. Yet Magners’ share of the on-trade packaged cider shrank from 69% to 52% in the five months to 31 July, a fall only in part explained by extra competition entering the market. The UK off-trade cider market grew by 10% in the six months to August compared with the same period last year but Magners’ share fell from 8.3% in August 2007 to 7.5% in the six months to August 2008.

C&C’s chief executive, Maurice Pratt, has fallen on his sword as his strategy “had not met expectations”. Capital expenditure has been slashed and the company has warned of a “material drop” in operating profits for the second half of its financial year.

db Finance on Friday 10.10.08