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Product category: Savings and investment
News Release from: Gartmore | Subject: Investment funds
Edited by the Insidemoneytalk Editorial Team on 28 April 2008

RBS steps up with rights issue

Generally, rights issues are not welcomed by investors.

They are often seen as evidence of a company's failing strategy and as an implicit demand for shareholders to find extra cash One of the key downsides to this rights issue is that at least some of the proceeds will, in effect, enter RBS coffers and depart immediately

However, Simon King, Senior Investment Manager at Gartmore and co-manager of the £148m[1] Gartmore UK Focus Fund, believes that the issue should be viewed positively in an environment of continuing uncertainty about asset quality across the banking sector.

"This should enhance the bank's ability to trade going forward," says Simon.

"Following this issue, RBS will be one of Europe's better capitalised banks, with a relatively clean balance sheet." The broader picture for the bank sector remains uncertain.

Recent news from RBS is likely to increase the pressure on other UK banks to seek fresh funding.

Banks exposed to toxic debt but choosing not to "grasp the nettle", may find themselves at a competitive disadvantage during the months ahead, especially in terms of achieving short-term funding.

"Hopefully, we can now look forward to substantial benefits coming through as a result of the integration of ABN Amro," adds Simon.

Nestle - World's Largest Food Company is Highly Optimistic: Roger Guy and Guillaume Rambourg, co managers of the Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund, single out Nestle's ability to pass on sharp rises in material costs to the consumers as one of the key reasons for Nestle's stellar performance.

Nestle remains one of the core holdings of the Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund.

"Thanks to Nestle's position as a market leader and therefore its ability to increase prices in order to counter surging raw material costs, sales remain in positive territory and forecasts for operational momentum in 2008 are strong.

In our view, with strong revenue growth and continued margin improvements, Nestle remains one of the best investments in the food sector." Nestle is busy preparing for the challenges that lie ahead.

Paul Bulcke, the man replacing Peter Brabeck as CEO of food giant Nestle has pledged to see through Nestle's evolution from a mass distributor of commodity-based foods like milk and breakfast cereal into the lucrative fitness and nutrition business.

The focus is now on sparkling waters, performance foods and healthy lifestyles.

Profits over the last few quarters have soared as a result.

"Correctly assessing shifts in consumer behaviour as well as commodity prices has also enabled Nestle to strategically position itself ahead of its rivals, recording strong profits despite pressures on margins", according to Roger and Guillaume.

Bulcke will also have to decide how best to allocate some of the cash the company is currently sitting on.

Record profits along with the recent $39bn sale of US eye care company Alcon to Novartis have swelled the coffers.

"Nestle has announced it is willing to spend beyond its self-imposed $2bn annual cap - set aside for acquisitions - if the move makes strategic sense.

There are rumours that Nestle may make a move on French cosmetics giant L'Oreal.

We will just have to wait and see." The Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund are both AAA rated by Standard and Poor's[2].

[1] As at 31/03/08.

[2] As at 31/03/08.

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