LONDON BRIEFING: BAE Systems Spends USD2 Billion On US Electronics

(Alliance News) - BAE Systems said Monday it has agreed to buy the Military Global Positioning ...

Alliance News 20 January, 2020 | 7:57AM
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(Alliance News) - BAE Systems said Monday it has agreed to buy the Military Global Positioning System business of Florida-based Collins Aerospace for USD1.9 billion in cash.

In addition, BAE will acquire a radios business from US defense contractor Raytheon for USD275 million in cash.

BAE said that as asset purchases, there will be tax benefits of USD365 million and USD50 million, respectively, from the two deals. It said both will be immediately earnings and cash accretive.

The UK company said the two acquisitions are subject to the successful completion of the proposed merger between Raytheon and United Technologies.

"These proposed acquisitions present a unique opportunity to add high-quality, technology-focused businesses to our Electronics Systems sector," said BAE Chief Executive Charles Woodburn.

He added: "The strategic and financial rationale is strong and these proposed acquisitions, which are focused on areas of highest priority defence spending, will further enhance the group's opportunity for continued growth in Electronic Systems."

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: called up 0.1%% at 7,681.10

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Hang Seng: down 0.8% at 28,823.61

Nikkei 225: closed up 0.2% at 24,083.51

DJIA: closed up 50.46 points, 0.2%, at 29,348.10

S&P 500: closed up 0.4% at 3,329.62

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GBP: down at USD1.2982 (USD1.3030)

EUR: flat at USD1.1096 (USD1.1094)

Gold: up at USD1,561.79 per ounce (USD1,556.62)

Oil (Brent): up at USD65.52 a barrel (USD64.74)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Monday's Key Economic Events still to come

US Martin Luther King Day holiday. Financial markets closed.

Bank of Japan monetary policy meeting

1400 CET IMF World Economic Outlook Update

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Businesses have warned of price rises after UK Chancellor Sajid Javid vowed that there will be no alignment with EU regulations after Brexit. The Treasury would not lend support to manufacturers that favour EU rules as the sector has had three years to prepare for Britain's transition, Javid said in an interview with the Financial Times. Javid urged businesses to "adjust" and said that while some will benefit others will not. He added: "There will not be alignment, we will not be a ruletaker, we will not be in the single market and we will not be in the customs union — and we will do this by the end of the year."

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The HS2 high-speed rail project in the UK could cost as much as GBP106 billion, according to an official government review not yet published. The review led by Doug Oakervee, a former chairman of HS2, reportedly says there is "considerable risk" that the project's cost will rise by up to 20% beyond the GBP81 billion to GBP88 billion range set out in a report by current HS2 chairman Allan Cook just four months ago. Oakervee's review says work on phase 2b of HS2 from the West Midlands to Manchester and Leeds should be paused for six months to study if it could mix conventional and high-speed lines, according to the FT, which has seen a copy of the paper.

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UK house prices got a post-election boost in December, according to the latest Rightmove house price index released. Prices increased 2.3% in December, which Rightmove said is the largest monthly rise it has ever recorded at this time of year. Nearly 65,000 properties were marketed between December 8 and January 11, with sellers feeling a "surge of optimism", said Rightmove. In the period stretching December 13 to January 15 - beginning immediately after the election - enquiries to estate agents were up by 15% compared to the same period a year ago.

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The number of London-listed companies making profit warnings reached an 18-year high in 2019, with retailers in particular feeling the brunt of political instability. According to figures compiled by accounting firm Ernst & Young, UK quoted firms issued 313 profit warnings in 2019, up 9.1% from 2018. Crucially, 17.8% of all London-quoted companies issued warnings, higher from 17.7% last year and the highest level since 22.7% in 2001. EY Head of Restructuring Alan Hudson said: "2019 was a challenging year, full of twists and turns that undoubtedly contributed to a remarkably high level of profit warnings. A toxic combination of protracted uncertainty and rapid sector change, left many companies facing an uphill struggle to meet their earnings forecasts in 2019." In the fourth quarter alone, 22% of profit warnings from companies cited "political uncertainty", according EY's report.

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The House of Lords could be moved out of London in a bid to "reconnect" with voters, senior Tories have said. Conservative Party Chair James Cleverly said the idea was an option being considered by ministers. It has been suggested that the upper house of parliament could be transferred from Westminster to York. Cleverly told Sky News: "What we are looking at is a whole range of options about making sure every part of the UK feels properly connected from politics.

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The leader of Fianna Fail has said Irish people do not respond well to negative campaigning as his party opened up a 12-point lead on rivals Fine Gael. The Sunday Times/Behaviour and Attitudes opinion poll published on Saturday night shows Fianna Fail's support has increased by five points to 32%, while Fine Gael has dropped by seven points to 20% – the party's lowest standing in the survey. Further polls will be published this week, with the election to take place on Saturday February 8. Speaking to reporters in Dublin on Sunday, Micheal Martin urged caution over the poll and said it will be a tight race between the two parties.

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Scope Ratings affirmed the Republic of Ireland's long-term local- and foreign-currency issuer ratings at A+ and raised their outlook to Positive from Stable. The German credit-ratings agency said the changes were driven by continued deleveraging, an improved budgetary position, and robust growth potential. However, still-high public- and private-debt levels, as well as external vulnerabilities, are rating constraints, the agency noted.

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US President Donald Trump on Sunday hailed the trade deal signed last week with China for dramatically improving relations with Beijing, saying it was "much better" than he expected. The "phase one" deal marks a truce in the two countries' trade war after nearly two years of tensions. But with tariffs still in place on two-thirds of more than USD500 billion worth of imports from China, US consumers and businesses will be left to foot the bill. "This is an incredible success for our entire country," Trump said Sunday evening at a rally in Austin, Texas. He was speaking to a convention of the American Farm Bureau Federation.

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A mysterious SARS-like virus has killed a third person, spread around China and reached a third Asian country, authorities said Monday, fuelling fears of a major outbreak as millions begin travelling for the Lunar New Year in humanity's biggest migration. The new coronavirus strain, first discovered in the central Chinese city of Wuhan, has caused alarm because of its connection to Severe Acute Respiratory Syndrome, which killed nearly 650 people across mainland China and Hong Kong in 2002-2003. A third person was confirmed to have died and 136 new cases were found over the weekend in Wuhan, the local health commission said, taking the total number of people to have been diagnosed with the virus in China to 201. South Korea on Monday reported its first case – a 35-year-old woman who flew in from Wuhan. Thailand and Japan have previously confirmed a total of three cases – all of whom had visited the Chinese city.

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The Chinese government announced a sweeping plan to reduce to use of single-use plastics including a ban on plastic bags in majors supermarkets and malls in major cities by the end of this year. The National Development & Reform Commission put out a statement outlining the plan, which aims to significantly reduce the production and use of plastic by 2025. China represents one of the world's biggest sources of plastic pollution. The ban on plastic bags in majors supermarkets and malls will be rolled out to smaller cities by the end of 2022, according to the plan.

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BROKER RATING CHANGES

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GOLDMAN RAISES AUTO TRADER GROUP TO 'BUY' ('NEUTRAL') - TARGET 688 (604) PENCE

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BERENBERG CUTS COATS GROUP TO 'HOLD' ('BUY') - TARGET 80 (90) PENCE

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BERENBERG RAISES UDG HEALTHCARE TO 'BUY' ('HOLD') - TARGET 920 (850) PENCE

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COMPANIES - FTSE 100

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Anglo American confirmed it is making a cash offer for Sirius Minerals of 5.50 pence per share, which values Sirius at GBP404.9 million. The offer price is a 34% premium to Sirius Minerals's closing price of 4.10 pence on Friday. Earlier this month, Anglo had said it was advanced talks to buy the cash-strapped potash mine developer, which is building the Woodsmith polyhalite mine near Whitby in North Yorkshire. "Anglo American's recommended offer provides greater certainty for Sirius' shareholders, employees and wider stakeholders, while bringing the prospects for the development of this potential tier 1 project closer to reality. We intend to bring Anglo American's financial, technical and product marketing resources and capabilities to the development of the project, which of course would be expected to unlock a significant and sustained associated employment and economic stimulus for the local area," said Anglo American Chief Executive Officer Mark Cutifani.

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Glencore and Merafe Resources confirmed the commencement of a consultation process for the Rustenburg ferrochrome smelter in South Africa. The smelter is part of the Glencore-Merafe chrome venture, in which commodities trader and miner Glencore holds an 80% stake, and chrome producer Merafe the remainder. The consultation process is being conducted under section 189 and 189a of the Labour Relations Act, which deals with the potential dismissal of one or more employees based on "operational requirements". Both companies also confirmed that it has issued a written notice to all employees at the smelter. The consultation process is a result of deteriorating operations and market conditions in the South African ferrochrome industry, including unsustainable electricity tariffs and interruptions, as well as real cost inflation.

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COMPANIES - OTHER MAIN MARKET AND AIM

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Fevertree Drinks said its 2019 performance was below board expectations - though still higher than the year before - due to a subdued trading in the UK over the Christmas period. Fevertree said 2019 revenue is to come in at GBP260.5 million, up 9.7% from GBP237.4 million in 2018. "As reported, the wider retail environment in the UK experienced a challenging Christmas with the mixer category not immune from the weak consumer confidence and corresponding slowdown in spending. Whilst Fevertree remained the clear market leader, the expected improvement in trading during this important period did not materialise with the macroeconomic uncertainty leading to a subdued end to the year across both the on- and off-trade," the company said. In addition, Fevertree said margins are lower than expected as it continues to invest in the brand for the long term growth, particularly as it seeks to make inroads in the US. As such, Fevertree said earnings are set to be down 5% in 2019 from 2018. Gross and earnings before interest, tax, depreciation and amortisation margins are expected to be down 49% and 28% in 2020, respectively.

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Coca-Cola announced it will invest, alongside Coca-Cola European Partners, as much as EUR1 billion over the next five years to support sustainable development in France. At the Choose France Summit, Coca-Cola's chair & chief executive, James Quicey, unveiled a "major investment plan" covering the next five years. Quincey and French President Emmanuel Macron will discuss the deal on Monday "in the frame of the summit". Coca-Cola and its primary bottling partner in France, Coca-Cola European Partners, will invest up to a combined EUR1 billion in order to introduce new products to the French market, as well as to support company brands and innovation.

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Monday's Shareholder Meetings

Dev Clever Holdings

RM2 International (re AIM delisting)

Troy Income & Growth Trust

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By Tom Waite; thomaslwaite@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Coats Group PLC 71.40 GBX -1.31 -
UDG Healthcare PLC 776.50 GBX -1.77 -
BAE Systems PLC 666.00 GBX 1.46
Auto Trader Group PLC 567.60 GBX -0.32 -
United Technologies Corp 149.89 USD -0.01

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