Dear readers,

The life of a Lex writer is full of challenges. Never mind the difficulty of working out whether multinationals with images polished to a uniform sheen by persuasive PR folk are good or bad investments. Never mind critical comments from you, our readers, keeping us up to the mark (“Is this what passes for premium content these days?” is one time-hallowed sally internalised within our workplace backchat.)

Such trials pale into insignificance compared with deciding which pub or bar to go to at the end of a hard week hewing at the comment face and determining which beer* to order when we get there. Tragically for Anheuser-Busch InBev, we rarely select one of its distinctly mainstream brews if an artisan ale concocted by someone with a beard or weird piercings is available.

Executives at the debt-heavy rollup have even less to celebrate after cancelling a planned initial public offering of the group’s Asian business. Lex had judged that the planned enterprise value to ebit multiple of nearly 28 times was too frothy. Investors thought so too. The company still needs to get its debts lower if it hopes to boost a lagging valuation. On Friday, AB InBev announced it would instead sell its Australian business Carlton to Japan’s Asahi to help with that hangover.

Pubs are plentiful in the City of London, to which the Financial Times has returned after 30 years. Traditional boozers have struggled in less prosperous districts in recent years, leaving local leveraged rollups that dominated the sector with financial problems. The sale of pub chain Ei, once Enterprise Inns, to private equity-backed Stonegate was a much better outcome than the big debt-for-equity swap that once seemed likely. Stonegate is paying a sizeable premium corresponding to the estimated net asset value. Therein lies the play; the properties. Expect struggling pubs to swiftly turn into much-needed housing if the fizz goes out the economy and Stonegate’s debt to equity ratio deteriorates. 

Skyscrapers, once scarce in the City, are now proliferating. Lex is in favour of towers that contain new offices. We therefore think the mayor of London is right to oppose plans for the weirdly shaped “The Tulip”, whose only purpose is to attract tourists. Borough, where the FT had its headquarters until a couple of months ago, is already rammed with dawdling herds of sightseers. Some parts of great cities need to be for workers not shirkers, we reckon, if agglomeration effects are to persist.

Further north, AG Barr insisted that disappointing Scottish weather (is there another kind?) was to blame for a dip in sales, knocking a quarter off shares on Wednesday. A scorching summer last year boosted sales of the group’s brightly coloured drink for hard men (and kids): Irn-Bru.

Another orange horror, President Donald Trump, has a stalwart supporter in Blackstone boss Stephen Schwarzman. Assets under management there have soared a whopping $150bn in the past year to $545bn. Money has flowed into private equity, credit and real estate funds. Shares in the alternative manager reflect that boon, up 50 per cent this year. Only party-pooping Democratic wannabes want to stop the fun, with Senator Elizabeth Warren laying out plans to “rein in Wall Street”.

Some of Blackstone’s dry powder went to work in Europe this week, buying the European distribution business of Irish building materials group CRH for €1.6bn. CRH boss and canny dealmaker Albert Manifold can raise a glass to the price paid for the group’s lowest margin business. Lex thinks he should do more to shore up finances before the US economic cycle turns.

Wall Street’s bankers, meanwhile, might have to make do with a modest half pint. Pay at Goldman Sachs fell, as did revenues, the investment bank said. Chief executive and amateur DJ David “D-Sol” Solomon managed to squeeze revenues from the bank’s investment and lending unit. That was not enough to stop a group-wide decline of 2 per cent due to tough fixed-income trading conditions. 

Bankers at Citigroup are relying on back-to-basics banking. This helped boost second-quarter earnings per share by 12 per cent in the first half. Higher interest rates have helped, but the bank’s big consumer business is vulnerable to impending cuts by the Federal Reserve. Shares have risen by two-fifths this year. Investors might consider calling time on the US economy play.

Golfer Rory McIlroy is already out of form. He dropped four shots at the first hole of the British Open amid pouring rain at Royal Portrush on Thursday. Conditions are equally miserable for equity analysts. Mifid II regulation was supposed to help independent research houses. A price war is hurting them instead. That has given Rothschild an opportunity to buy into “independent” research house Redburn. Analytical expertise could help the investment bank gain a few notches in all-important M&A league tables. 

Whether you are celebrating a good week or recovering from a bad one, enjoy your weekend.

Andrew Whiffin
Lex writer

*or refreshing, non-alcoholic cordial

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