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Sainsbury makes surprise move into e-book market

Date: Tuesday 12 Jun 2012

London open

City sources predict the FTSE 100 will open down 8 points from yesterday's close of 5,432.

Stocks to watch

Supermarket firm Sainsbury has made a surprise move into the e-book retail market with the acquisition of HMV's stake in online venture Anobii. Cash-strapped entertainment media retailer HMV is selling its stake in the social network and online retailer of e-books for just one pound. As a result of the transaction and additional investment by Sainsbury the supermarket chain will have a 64% stake in Anobii. Other stakeholders in the venture are publishing firms HarperCollins, Penguin and Random House Group (UK).

Pharmaceuticals giant GlaxoSmithKline has signed an agreement to buy eczema treatment drug 'Toctino' from Basilea Pharmaceutica. Toctino, otherwise known as 'alitretinoin', is a prescription-only, once-daily, oral retinoid used for severe chronic adult hand eczema which is unresponsive to other potent topical steroids. Available in 14 countries and approved in 15, it is in a Phase 3 trial in the US. Total sales in 2011 amounted to £22m.

Even though it advised the market in April its results would be at the top end of expectations, Oxford Instruments still beat forecasts with its full year results. The provider of high technology tools and systems for research and industry delivered adjusted profit before tax of £42.0m in the year to March 31st, up 60% on the previous year's £26.2m and better than the £39.8m the market had been expecting. Revenue rose 28.6% to £337.3m from £262.3m, topping expectations of £336.9m.

In the Press

Global markets suffered on Monday as early optimism over Spain’s 100bn euros (80bn pounds) bail-out proved short-lived, amid fears over the strings attached to the international effort to save its banks and concerns about its mushrooming sovereign debt. Stocks initially climbed and Spanish borrowing costs fell on the first day of trading after the Eurozone’s fourth biggest economy asked for aid. The Ibex-35 in Madrid index rose 5.9 per cent, while shares in Bankia, the ailing bank, climbed 15 per cent. But fears over how the money would be funnelled to banks soon hit sentiment, as questions surrounded the terms of the deal, which will add to Spain’s debt burden. Having dropped below the 6 per cent mark, Spanish yields - or implied interest rates - on its 10-year debt later moved back above 6.5 per cent. "The government bond market has quickly recognised that the bail-out is adding to pressure on sovereign risk,” said Dominic Rossi at Fidelity Worldwide Investment, The Telegraph writes.

House sales have plunged by almost 40% since the peak of the housing market as the lack of available mortgage finance prevents potential buyers from stepping on to the property ladder. In its latest health check of the housing market, the Royal Institution of Chartered Surveyors said that in May the average number of completed sales per surveyor was 15.6. This represents a significant drop from May 2007’s figure of 25.4, The institution said that with transactions down and affordable mortgage finance harder to come by, homes were taking much longer to sell. In the three months to May, surveyors sold 23.1% of the homes on their books, a huge fall from the same period in 2007, when they disposed of 40.9%, The Times reports.

Bank of England policy maker Adam Posen has urged the UK central bank to buy assets other than Government bonds. Mr Posen, who will step down from his role in August, added that he was “too optimistic” when he abandoned a push for more stimulus in April. “Further asset purchases by central banks can improve the economic situation we are now in,” Mr Posen said in a speech in London. He also said it is “time for the major central banks, including the Bank of England, to engage in purchases of assets other than government bonds,” The Telegraph says.

Newspaper tips

The Telegraph’s Questor column stays steer clear of structural steel firm Severfield-Rowen. It issued a profits warning yesterday, prompting a big sell-off. This has an attraction for investors because buying on weakness often leads to profits. But Questor believes the construction industry is too weak in the UK to justify a buy. The advice is 'avoid'.

In The Times, Tempus likes outsourcing giant Serco’s acquisition of Vertex. The £55.5m payout will enable Serco to offer more back room services like payroll when it bids for contracts. The idea is that customers now want a bigger spectrum of outsourced services instead of just frontline operations. On the other hand Serco shares have risen strongly this year so Tempus can only advise to “buy on weakness” (that phrase keeps popping up doesn’t it).

The relatively new (six years old) insurance company Lancashire Holdings gets the thumbs up from Tempus. It operates in the risky but profitable areas of reinsurance and “retrocession” and has proved adept at giving investors significant special dividends ($918m since 2007). Buy.

US close

US benchmarks slumped on Monday after investors quickly shrugged off Spain's request for bank aid and cautiously looked ahead to Greek elections on June 17th.

Stock futures jumped higher before the opening bell on the news that Spain on Saturday requested a credit line of up to €100bn to help recapitalise its banks; the official request will not be made until after independent auditors have published their evaluations on June 21st.

Unlike previous sovereign rescues (in Ireland, Portugal and Greece), there will not be any new austerity packages or reforms tied to this package. However, RBS’s chief economist Andrew McLaughlin highlights that this money isn’t for nothing: “The bailout is borrowed funds and Spain’s government debt will rise accordingly. And will it bring the crisis to a halt? This is highly unlikely.”

“There is still the Greece election this coming weekend and beyond this no shortage of concerns and areas of vulnerability throughout the Eurozone. This crisis will rumble on,” he said.

Unsurprisingly, banks were among the worst performers of the day on the back of Eurozone concerns, including Bank of America, Morgan Stanley and JP Morgan Chase & Co.

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