Lots of updates and items of news relevant to stocks that I follow today so I'll try and keep it brief in the main.

• Interserve (IRV) - announced an in line IMS
• Essentra (ESNT) - doing a 9.9% placing to raise approximately £160 million to help fund a US acquisition which looks fairly valued and is in line with their strategy. It is said to be immediately earnings enhancing and offers US$16 million of cost saving synergies by 2016 compared to the US$455 million they are paying for The Clondalkin Group. Stock still seems a bit expensive on around 17x so not that surprising they are using their paper.
• Safestore (SAFE) - Issued a positive Pre close trading update in which they suggest their results will be slightly ahead of the top end of consensus for the full year, which as of 11 November 2014, they say based on the forecasts of 9 analysts, the consensus range for cash tax adjusted earnings per share for the year ended October 2014 is 12.6 pence to 13.1 pence.
• Sainsbury's (SBRY) - Interim results perhaps not as bad as expected perhaps and dividend held at this stage despite rumours of a cut. However, with a decline in second half profits expected and them targeting 2x cover going forward it looks like they'll deliver a cut with the full year numbers, although this is in analysts forecasts already. Having sold it back in the summer when I said farewell to a smooth operator, I'm not tempted to go back in just yet as Mike Coupe is still trying to cope with the effects of Justin King's "Leahyesque" hospital pass.
• Scottish & Southern Electricity (SSE) - Half year results were up modestly and they increased the dividend by 2.6% and they say they are looking to increase in line with inflation despite low levels of cover. I also note they are disposing of some street lighting projects. These the special purpose entities (SPEs) established in England under the Private Finance Initiative (PFI) are funded through a mix of senior debt and equity, and the removal of this project-related senior debt, along with the cash consideration of £97.5 million, will have the immediate effect of reducing SSE's net debt by £326.4m. Seems a bit adventurous for a boring utility and begs the question how much off balance sheet project related debt are they potentially exposed to?

• Connect Group (CNCT) announced an acquisition and 2 for 7 rights issue raising £52.3 million at 102 pence to help finance it. They are buying Tuffnells for £113.4 million which is a leading provider of next-day B2B delivery of mixed freight / parcel consignments, specialising in items of irregular dimension and weight ("IDW"), examples of which include bulky furnishings, building materials and automotive parts. They are paying a reasonable looking 6.3x to 7.1X EBITDA for  it after allowing for synergies and it is in line with their strategy of diversifying away from the core newspaper and magazine distribution business. On the acquisition they say:

·     a good strategic fit with the Connect Group's existing core competencies in time sensitive specialist distribution;

·     a business with a strong track record, well positioned for further growth, and able to build upon its leading position in a market with sustainable growth characteristics;

·     in line with the Group's ambition over the medium term to derive at least 50 per cent. of profits from outside of newspaper and magazine wholesaling;

·     adds value to the organic revenue growth opportunities for the Enlarged Group, in particular via provision of a national distribution network;

·     the opportunity to achieve pre-tax cost synergies across the Enlarged Group of £2.0 million per annum within three years and the potential to generate revenue synergies from shared infrastructure;

·     creates significant value for shareholders:

o  EPS accretive in year 1 and substantially accretive by year 3

o  Post tax ROIC above cost of capital in year 1 (9%) 

·     in addition, the strong cash generation of Tuffnells supports the Group's progressive dividend policy.

I would say it seems like a reasonable deal which moves them to 38% of profits from outside their news distribution business on a pro forma basis and well on the way to their goal of 50%, plus it adds onto their other recently announced distribution business. The rights issue may also help to make the balance sheet look more healthy (depending on the assets it brings versus the price paid) and provide more distributable reserves to help maintain their progressive dividend policy. 
However on the dividend they are unusually paying it on the rights shares too and as a result adjusting the final payment due next year. They explain this as follows:

Connect paid dividends per Ordinary Share of 9.3 pence and 8.6 pence for the years ended 31 August 2013 and 31 August 2012, respectively. The proposed final dividend of 6.6 pence per Ordinary Share for the year ended 31 August 2014 announced on 15 October 2014 in Connect's Preliminary Results Announcement will be adjusted to reflect the impact of the Rights Issue in connection with the Acquisition. The proposed final dividend will be adjusted to 6.0 pence per Ordinary Share to reflect the bonus element associated with the Rights Issue and both Existing Ordinary Shares and New Ordinary Shares will be entitled to receive this dividend.The proposed final adjusted dividend of 6.0 pence per Ordinary Share is subject to approval by Shareholders at the Annual General Meeting on 4 February 2015 and, if approved, will be paid on 6 February 2015 to Shareholders on the register of members of at close of business on 9 January 2015.

Following the Acquisition, Connect intends to maintain its existing progressive dividend policy, having regard to the availability of distributable reserves and cash, and taking into account the Enlarged Group's working capital and investment requirements.

Seems like a reasonable deal which furthers their strategy and should boost their earnings down the line and potentially bolster the balance sheet too so all in all seems sensible. But in contrast to Essentra I'm a bit surprised they are issuing equity at such cheap levels. So if you didn't get in before I suspect the usual fall on the back of it going ex rights and in the run up to the payment may give you an opportunity to get in at levels around 150 pence again and may even close the gap on the chart in  the low 140's - something to watch out for I would say. 


Finally, if you have made it this far and having spoken earlier about a hospital pass, as a reward to you if you are reading this on the web I offer a video of Top 5 Rugby Tackles gone wrong at the end of this post. 

Just a brief update today on the back of Morrison's (MRW) trading update and the announcement of UBM's rights issue which they had flagged up previously.

Taking Morrison's first the sales continue to decline but the rate seems to be slowing and the comparatives get easier in Q4. They say they are still in line with their plan announced earlier in the year and have tightened their forecast for this years pre tax profits to £335 to £365 million. So some reassurance there and Mr Market seems to have been pleasantly surprised (not as bad as feared presumably) as the shares have bounced today along with the rest of the sector. I see also that Netto's return to the UK via a JV with Sainsbury's has launched today and their offers of Prosecco at £5.50 and Lego at £3 seem somewhat eclectic. 

Looks like a relief / bear closing rally in the short term - not sure I'd be brave / clever enough to call the bottom of the food retail sector here ahead of the crucial Christmas trading period. Anecdotally I notice that we have been shopping more at Morrison's than Tesco's recently so their improved offering seems to be gaining some traction in our household at least.

Meanwhile UBM have announced a heavy 4 for 5 fully underwritten rights issue at 287 pence. All in line with their planned US acquisition although I do worry about that a bit given the record of UK companies going into the US and making a hash of it - think Tesco most recently and Sainsbury's before them to name just two. In the statement they also say that the dividend will be adjusted to take account of the extra shares being issued (around 44%) and they will target 2x cover going forward. So I reckon based on an ex-rights price calculated today this will mean it may end up on around a 3.6% yield with limited growth in short term while cover is built - so may be not that attractive at these levels, but might get more interesting if it falls heavily over the rights period, but probably no rush as you might also want to wait and see how thing pan out for them in the US first.

This first set of result since they reset their business model back in March this year bear the scars of that. The financial highlights from their statement are as follows:

·    Total turnover down 4.9% to £8.5bn (2013/14: £8.9bn)

·    Like-for-like sales (ex-fuel/ex-VAT) down 7.4% (2013/14: down 1.6%)

·    Underlying profit before tax(1) down 51% to £181m (2013/14: £371m(2))

·    Underlying earnings per share(1) down 52% to 5.74p (2013/14: 11.92p(2))

·    Profit before tax £239m (2013/14: £344m)

·    Interim dividend up 5.0% to 4.03p (2013/14: 3.84p)

·    Net debt reduced by £209m to £2,608m (FY 2013/14: £2,817m)

·    2014/15 underlying profit before tax guidance confirmed at £325-£375m

They also highlighted strong cash flow helped by working capital movements and property disposals, while debt was reduced and some new funding arrangements put in place. They acknowledge that it is still early into their three year plan which aims to generate £2 billion of cash and £1 billion of cost savings. A new Chairman elect, Andrew Higginson is due to arrive in October and they are also due to launch a Morrisons card too (loyalty presumably). They also reiterated their full year profits forecasts and a commitment to an increased dividend as reflected in the 5% increase posted with these figures and a commitment to full year dividend of 13.65 pence for a yield of 7.5%. However they acknowledged that LFL sales had yet to improve but anticipated that these would improve toward the end of the second half. Dalton Philips, Chief Executive, also said:

"We are six months into the three-year plan that we set out in March and, although it is early days, I am encouraged by the progress we have made. There is an enormous amount of change and modernisation flowing through our core business, much of it enabled by new systems. Price investment, in-store improvements, and better products were all key components of the work undertaken in the first half, and the Morrisons card launches soon. Our new growth channels - online and convenience - are progressing well, and our cost-savings and cash flow plans are both on track to achieve our ambitious three-year targets.

Although it is too early to see the benefits of the three-year plan in the sales line, Morrisons is getting back on the front foot, and implementing change and innovation at real pace throughout the business. We are meeting the challenges of structural change with decisive action and are on track to become a more distinctive value retailer for the next generation of grocery retail."

Summary & Conclusion
The plan seems to be on track so far, but it is probably too early to say whether it will succeed in the medium term. With a new Chief Executive at Tesco and them seeming likely to invest in price as well the possibility of an on going price war continues to hang over the sector and may negate Morrison's shift in pricing. As it stands the value case remains in Morrisons with the yield and asset backing from their properties. However, the sustainability of the dividend and doubts about the value of the properties in the medium term will continue to dog them as the sector remains in turmoil and the competitor responses are awaited and as such it could equally be a value trap, so as ever you pay your money and take your choice.

Further to my post last week about the food retailers I have seen a couple of articles talking about the cut backs in their planned store openings and land banks etc. The above graphic comes from one of these at the Daily Mail and it is quite a good article on this and other background to the competitive situation in the sector. You can click on the above image to read more if that is of interest to you.