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Thomas Cook retreated after confirming the key terms of a rescue deal with the Chinese conglomerate Fosun and its debtholders. The holiday company reiterated that existing shareholders’ interests were likely to be significantly diluted and there was no certainty that it would remain listed.

Fosun agreed to contribute £450m of new money and take at least 75 per cent of the equity of the core tour-operating division as well as 25 per cent of the group’s airline, subject to approvals. Lending banks and noteholders targeted injecting £450m of new money in exchange for 75 per cent of the equity of the airline and up to 25 per cent of the core business. Stifel analysts said the update “confirms neglible equity value”.

Sellside stories

● Investec upgraded Wm Morrison from “hold” to “buy” with a 240p target price as part of a UK supermarket sector review.

“Having reviewed the possible impact of Brexit-driven changes in consumer spending patterns, tariffs and supply chain disruption, we believe that the current weakness in the supermarket sector is unwarranted. While there is currently undoubted nervousness on companies with large UK exposure, we still feel the sector offers compelling value.”


Consumers are better off yet have grown more cautious since the start of 2019, as shown in a breakdown in the correlations between supermarket like-for-like revenue growth versus household consumption expenditure and disposable income, said Investec. Since the third quarter of 2018 household consumption expenditure and disposable income metrics have expanded but grocery sales have declined markedly, it said. As savings rates have also fallen, the disconnect suggests consumers have been spending in other areas, Investec said. It estimated that supermarket revenue growth was already tracking around 4 per cent below the expected level, suggesting further downside would be limited post-Brexit.

The broker also saw trade tariffs as a manageable expense, estimating an extra cost of £2.54 a week on the £66 average weekly spend on groceries. Supply chain disruption was a concern, with almost half of the UK’s food supplies at risk, but European suppliers are just as invested as UK buyers in finding a solution and any hit to supermarket revenue was likely to be temporary, Investec said.

Morrisons has been a resilient performer this year, with a revitalised core business and the strongest balance sheet of the publicly quoted UK supermarket stocks, giving it the firepower to grow through acquisitions, said Investec. Expanding the wholesale operation would be the key catalyst for the stock, it said.

The research also repeated “buy” advice on J Sainsbury and Tesco while keeping a “sell” on Ocado.

● UBS upgraded Greggs, the bakery operator, from “neutral” to “buy” with a £23 target. A 20 per cent pullback in response to the lack of earnings upgrades at Greggs’ recent first-half results has given investors an “entry point for a high-quality, multi-year, growth story”, it said.

“We believe that the growth opportunity remains significant for Greggs, and given the strength of trading six months on from the vegan sausage roll launch, have greater confident in the outlook. In particular, we see potential for over 2,500 stores, with the latest UBS Evidence Lab geospatial analysis showing stable and lower cannibalisation than peers. In addition, Greggs are well positioned to drive like-for-like growth given slowing competitor openings, increased investment in strategic initiatives announced with the first-half results, and leading value perception.”


● Barclays downgraded AB InBev from “equal weight” to “underweight” with a €74 target. A 48 per cent gain in the year to date is overdone because the brewer will probably cede market share to Heineken in the key markets of Brazil, Colombia and South Africa, Barclays said.

The US, InBev’s largest market, will probably remain in structural decline with Bud Light sales worsening because of a lack of successful marketing, it said. Volume growth in China was likely to be limited amid growing anti-US sentiment as higher-priced import brands have been beating Budweiser in the premium segment, Barclays added. It also called the market’s valuation of InBev “overly simplistic” because it appeared to ignore that much of the group’s revenue growth was coming from high-inflation geographies whose currencies were suffering. Worsening US demand, further issues in emerging markets and weaker sales in China have the potential to send the stock as low as €60, Barclays said.

● In brief: Chesnara raised to “hold” at Peel Hunt; Dassault Aviation rated new “equal-weight” at Morgan Stanley; Eden Research rated new “buy” at Cenkos Securities; H&M raised to “outperform” at RBC; Leonardo rated new “overweight” at Morgan Stanley; Meggitt cut to “sell” at Société Générale; Royal Unibrew raised to “hold” at Jefferies; Sixt raised to “buy” at UBS.

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