Cable & Wireless will make a smaller than expected pensions settlement as part of its proposed demerger, which is due to be completed by the end of March.
It intends to inject £30m into its pension scheme, which will be split between the two new companies, Cable & Wireless Worldwide and Cable & Wireless Communications (the final label for the business formerly known as C&W International). Earlier estimates for the pension contribution was more than double the £30m figure. With the company confirming trading is in line with expectations and announcing a total dividend of 9.5p for this year and a similar amount for 2010/2011, C&W's shares have climbed 3.7p to 147p.
The company has announced a shareholder meeting to approve the move on February 25, with the demerger due to go ahead by March 26. As expected - and this would have caused controvery otherwise - the various executive incentive schemes will not crystallise as a result of the demerger.
Meanwhile as the final piece of the financing jigsaw, C&W Communications has agreed $500m worth of medium term facilities and is also launching a bond offer for the same amount.
The company's house broker RBS has issued a buy note after today's news, which probably won't stagger anyone. It said:
C&W has provided additional financial details of its demerger. The dividend policy should ease concerns of a cut, and the pension fund top-up of £30m in cash is limited. The trading update reads well for CWW, and though the Caribbean remains challenging, CWC is trading in line with expectations.
Not everyone is as positive however. Mark James at Evolution Securities has a sell recommendation, saying:
[The] lower than expected pensions settlement may be well received but with no improvement in underlying trading and poor cash generation we remain sellers with a 110p target price.
The pensions settlement at £30m is less than £75m consensus expectations (by 2p a share). [The] 9.5p dividend for 2011 (flat year on year) may alleviate some concerns but it's subject to underlying trading. Whilst dividend cuts were never likely today, payments remain uncovered and we believe demerger will highlight underlying poor cash generation.
Any strength today should be taken as an opportunity to sell. Underlying cash generation remains poor and [estimated] free cash flow of £138m for 2011 (group) does little to justify either the company's £3.7bn market capitalisation or the £246m 2011 dividend announced today.
And Andrew Darley at FinnCap was also less than impressed:
Demerger has been so well flagged that investors must by now be fed up with the "demerger unlocks value" arguments, since it should already be apparent to all, and our concern is that the harsh glare of company by company analysis will reveal more downside than up. With the fear of pain to come at C&W, why take the risk when BT can provide a weaker yield (5% BT versus 6.6% C&W) but lower risk, and that's the only reason to hold either of them. Sell C&W, Hold BT.
