Lombard: Prudential chief will still be the Egg man

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Sale of online business is abandoned

It is a good job that Prudential is better at selling life assurance than it is at selling businesses.

When Mark Tucker reveals his strategy review later this month alongside third-quarter figures, the new chief executive is expected to say that the life assurer will retain its 79 per cent stake in Egg and the group’s US subsidiary Jackson National Life, despite speculation that both would be sold if this could be done sensibly.

The decisions are disappointing but necessary. Jackson is sub-scale and not a priority for expansion but if it continues to provide growth ahead of the US market, there is no reason to rush to disposal and every reason not to expose it to the uncertainty that is part of embarking on a sale.

If the Pru needed any reminder of the downside of setting out on a disposal, it needs only look at Egg.

The days have long since gone when there was talk that the online operation might fetch up to £1.6bn.

At Wednesday’s closing share price of 101½p, Egg’s market value is now no more than £836.8m.

Even before the first, failed auction last year Egg had made mistakes, notably the costly expansion into France but it was also damaged by the extended process that delayed the French exit and brought instability to the UK business.

In current, more difficult, lending conditions and under the continuing shadow of bad-debt provisions, Egg cannot afford to be distracted by concerns about future ownership.

In the meantime, if there were any heroic potential bidder prepared to pay a substantial premium, then an announcement that the Egg stake is not for sale would not deter either buyer or, one assumes, seller.

Nevertheless, the decisions leave the strategic review looking thin. Mr Tucker may yet spring a surprise but the expected moves to tweak the UK business and make it easier to step up the pace of growth in Asia barely amount even to the “evolution not revolution” he signalled in the summer. “As you were” is not much of a rallying cry for the new regime.

Bling bling

When times get hard, British consumers huddle in front of their televisions and hit the gin but go easy on the bling. That, at any rate, is one interpretation of Wednesday’s trading statement from GUS, which reported weak sales of jewellery at its Argos chain but good performances in white goods and LCD televisions.

In the context of the sharp downturn on the high street, Wednesday’s Argos figures were pretty respectable, with a 3 per cent drop in like-for-like sales and gross margins held thanks to supply-chain gains.

However, GUS’s Homebase DIY chain performed a little worse than expected, with like-for-likes down 4 per cent in the first half.

But yet again GUS’s real jewel was Experian, its credit information business, which saw sales rise 29 per cent – 12 per cent before acquisitions.

All of which would seem to make it less likely that GUS will split off Experian – as it is committed to do one day – any time soon. It is spinning off Burberry at the end of this year, which will focus more attention on its other three legs, and the UK retail environment may get worse before it gets better: GUS is working on the assumption that market like-for-likes will decline for the next 12 months.

This is hardly the ideal moment to cast loose a high-margin, cash-generating, strongly growing business like Experian, with elements of contra-cyclicality. And arguably Experian is growing so fast that the market might not put the right valuation on it as an independent.

GUS shares stand on a prospective p/e of 14, in line with the retailing sector, though after the Burberry spin off roughly half of operating profit willcome from Experian – and its US peers stand on a price/earnings ratio of 20. Bling may be out at Argos but, in an other-wise dowdy looking retailing sector, GUS still offers a flash of silver.

Second coming

Call it the second coming of John Lovering. Two years ago, the retailing entrepreneur made a putative bid of 120p a share for Somerfield but withdrew it in the face of opposition from John von Spreckelsen, the executive chairman, and his board.

Now Mr Lovering seems to be back. He would become chairman if the consortium that includes Apax, the private equity group, finally launches a bid (after a mere six months examining the books) on Friday – the deadline set by the Takeover Panel – and pitches it high enough to win over shareholders, including the hedge funds that have been piling into the stock. The indicative offer was 205p but auction tension has been lost with the withdrawal of a potential rival.

Signing up Mr Lovering certainly suggests the consortium means business. He has a string of big retail successes to his name, including the buy-outs of Homebase and Debenhams. But questions arise: will he have the time, given his other extensive commitments? Why, apart from an obvious pile of money, does he want to do the job, given the potential reputational risk of entanglement with the perennially disappointing Somerfield? And does he have a vision? It may be his second coming but there may be limits to even Mr Lovering’s miracle working.

martin.dickson@ft.com

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