After stepping away from snapping up the rest of Verizon, UK telecom group Vodafone is back on the deal hunt with a preliminary approach for Germany’s Kabel Deutschland in deal valued at around EUR7billion. Voda expressed interest in Kabel back in February this year but the talks yielded little progress with Kabel reportedly unhappy with the low offer made by Vodafone. Since then, Vodafone has reported poor earnings in the previous quarter with weakness in Europe damaging group net profit. It’s no surprise that Voda is on the acquisition hunt and Kabel appears to be a strong candidate for the Vodafone give the access to TV/internet and mobile services to 8million or so German households. A takeover of Kabel provides Vodafone with a strong entry into the German market and integration of Kabel services will strengthen Voda’s offering, particularly in the TV market. So on the whole, this appears to be a good strategic fit for Vodafone and should shore up some confidence in the stock after turbulence following the poor earnings release. Liberty Global’s takeover of Virgin Media may have acted as a catalyst in the industry – there was some speculation that Liberty was eyeing Kabel Deutschland but Vodafone pulled the trigger first. On Sainsbury’s, the company reported decent numbers for the Q1, performing better than peer Tesco. Sainsbury’s LFL sales rose 0.7%, achieving its 34th straight quarter of LFL growth. It has experienced a slowdown but avoided posting a decline unlike Tesco, cheering investors who have been worried about the UK supermarket space for some time. The update itself could be read as dull with little fresh catalysts announced to provide a boost to the share price in the mid to long term. Furthermore, Sainsbury’s said it benefited on the back of one off-off factors last year such as the Queen’s Diamond Jubilee, but that’s a one-off and 2013 is a different story all together. The colder weather conditions in the Q2 will most certainly have an effect on earnings for the quarter. That said, where Tesco has failed to recapture the UK domestic market, Sainsbury’s is clearly winning with its strategy, growing its market share up to 16.8%. It also did not receive the reputational hit of the Horse meat scandal which hit Tesco. Sainsbury’s CEO Justin King has been awarded a handsome 20% pay rise in recognition of this performance however management’s online strategy will be under close scrutiny given the strength of online services offered by competitors. Tesco’s online services is second to Amazon’s in terms of market share and WM Morrison recently signed a deal with Ocado, heating up that market. Sainsbury’s is likely to feel pressure in the months ahead on the back of the stiff competition online. Staying on the online theme, ASOS, reported a stunning near 50% rise in sales, helped by the acceleration of its international expansion and by continuing to eat into the market share of the UK’s high street clothing retailers (H&M’s weak numbers today reflect this). UK sales look strong but US sales lead the international sales growth for the online retailer. ASOS has been improving its website, internationally and the big increase in France and Germany provides investors with a huge degree of comfort, particularly as Europe’s economy remains in a recession and unemployment is still staggeringly high. The company boosted gross margins by 10bps over the quarter with momentum remaining encouraging for the year so the outlook for the FY should bolster the stock price further in the months ahead. ________________________________________ Joe Rundle Head of Trading at ETX Capital
Posted on: Wed, 12 Jun 2013 11:08:59 +0000