FTSE summer rally continues, Next eyes Joules stake, and BHP's offer for OZ Minerals marks return to big acquisitions

“The summer is supposed to be a quiet time for markets as many people are sitting on the beach, rather than glued to a screen trading stocks and shares. So far, this summer is proving to be a decent session, and one that will provide a nice surprise when people get back to their desks after a bit of sun, sand and sea,” says Danni Hewson, AJ Bell Financial Analyst.

“The FTSE 100 managed to press ahead by a further 0.2% at the start of the new trading week, meaning it has been on a positive run since mid-July. The 6% gain for the current rally to date means the UK blue chip index is less than 1% away from hitting breakeven for the year so far. That’s considerably better than the S&P 500 index in the US which is down nearly 14% year to date.

Joules and Next

“Posh wellies seller Joules has found a new lease of life on the stock market following news of a potential investment in the business by retail giant Next.

“Joules has been struggling this year, with disappointing sales, supply chain problems and rising costs. Once a shining star in the retail sector, Joules saw its share price collapse after a string of profit warnings.

“Next doesn’t typically buy companies outright so it seems unlikely that an initial investment in Joules will lead to a full takeover. Instead, expect to see it become an influential shareholder and for more of Joules’ products to appear on Next’s website.

“Next has a system called Total Platform, which enables third party retailers to grow their sales without large capital costs, operational risks or time developing sophisticated infrastructure. This platform is already used by the likes Gap UK, Reiss and Victoria’s Secret, with Next having also acquired equity stakes in these businesses.

“In essence, Next can offer more products on its website which makes it more attractive to customers, and it also earns a fee for handling the e-commerce needs of third parties.”

BHP

“For years, big mining companies have typically shied away from making large acquisitions, having paid the price for being overly aggressive at the top of the last commodities cycle a decade ago. They spent too much money just at the point when commodity prices peaked, resulting in significant asset write-downs and too much debt.

“A greater focus on operational efficiencies and organic growth has seen firms in the mining business reduce debt, pay out generous dividends to shareholders, and become leaner entities.

“With commodity prices having soared in recent years, there is now a stronger temptation to start doing big deals once again. BHP has finally caved in with an attempt to buy OZ Minerals.

“Its near-$6 billion offer makes sense strategically – adding more copper and nickel to its portfolio, thereby making the group even more relevant to customers wanting the metals needed to build electric vehicles and renewable energy projects.

“However, OZ Minerals knows BHP has deep pockets and that its own projects could be worth a lot more in the future, so it has been quick to reject the bid.

“Mining giants typically get what they want, but that sometimes comes at a price – namely, the risk of paying too much for acquisitions.

“It will be interesting to see if BHP shows restraint in its pursuit of OZ Minerals and the extent to which it is willing to continually throw more money on the table. History suggests that it is going to be difficult to avoid as miners have form for splashing the cash once they’ve made up their mind over an acquisition target.”

These articles are for information purposes only and are not a personal recommendation or advice.