Call it an embarrassment of riches at JD Sports. Profits, like the share price, are flying, to the point where the company predicts £750m for the full-year, or £150m more than the City had expected, which must be the largest profit upgrade ever announced by a UK retailer.
The embarrassment, or difficulty, lies in the fact that JD accepted a large helping hand from the public purse – notably £61m in UK furlough cash – and is keeping its Covid support, a stance that looks increasingly hard to sustain.
Many other UK retailers, from Primark downwards, long ago accepted that, when post-lockdown trading turned out better than feared, they ought to pick up the tab for protecting jobs. There’s no obligation to do so, but a pattern has been established and JD, a company now worth an astonishing £11bn, is an outlier.
JD said in July it would consider repaying payroll support when its full-year results are in, and it’s sticking to that script now. And it’s being consistent in its fretting about further trading restrictions: shareholders are not getting a half-year dividend either.
But one suspects the hesitation about returning cash to the UK Treasury is also influenced by the worry that, if it concedes the principle, governments elsewhere may expect a contribution. JD trades from Australia to Thailand to Germany to the US and, in one way or another, most territories launched support schemes.
The US, which now accounts for more than half JD’s profits, is the big one. JD was clearly an indirect beneficiary of the stimulus cheques sent by federal government to lower-income households. Would it be on the hook for a US payment if it coughs up in the UK? Y, si es así, how could any sum be calculated?
Ese, por lo menos, seems to be the worry in the boardroom: where does the line end? Pero, Realmente, they’re over-thinking the problem. Just follow local practice.
US sports goods retailers, who are all reporting knockout numbers, appear to be under no pressure to take a wider view. But the culture in the UK, when JD’s profits are also smashing pre-pandemic levels, is different. Repaying the UK furlough money remains the right course – and it shouldn’t take this long to reach that conclusion.
Is SSE, the Scottish FTSE 100 energy group, a sleeping giant that would be worth more in pieces? Should the exciting renewables business – windfarms and hydro power – be separated from the dull and boring business that runs electricity wires?
Ese, or something like it, tal vez the agenda being pursued by Elliott Management, the activist US hedge fund currently also trying to shake the tree at GlaxoSmithKline. Elliott is reportedly building a stake at SSE.
There are a couple of odd aspects to the supposed thesis, sin emabargo. Primero, unlike GSK, SSE hasn’t obviously underperformed for years. It wisely got into the renewables business early and its shares stands close to a 10-year high, which is not bad for the sector. Only the last push in the share price can be said to be related to recent reports by the Betaville blog of Elliott’s stake-building.
Segundo, the idea that the renewables division is a hidden gem within SSE is debatable. sí, there’s a fashion for separating “new” energy from the old, y, sí, one can find City analysts who think SSE is undervalued. Por otro lado, renewables are already 40% of the whole, so can hardly escape analysis in the usual sum-of-the-parts calculations. Note that Jefferies’ analysts concluded “no deep valuation discount” when prodding the break-up question last month.
We’ll await Elliott’s wisdom, but one hopes its big brains haven’t overlooked the political angle. Nicola Sturgeon may also have a view on whether one of Scotland’s biggest companies should split in two to please a New York hedge fund.
There was a reminder on Tuesday that, before Morrisons proceeds to auction itself to the highest bidder, there’s the important matter of the pension fund to be taken care of.
Clayton, Dubilier & Rice has now cleared the hurdle by adding a few securities over properties, thereby reaching agreement with the fund’s trustees. That leaves Fortress Group, the under-bidder, to do the same.
There is no reason to doubt that Fortress will step up eventually, but any delay would not look good. By way of encouragement, Morrisons’ board could have a quiet word and say that, unless the trustees are happy, there won’t be an auction.