"The FTSE 100 is having the time of its life as takeovers continue to power the market. BHP's move on Anglo American* has got investors excited at who else in the blue-chip UK stock index might be next for a bid," says Russ Mould, investment director at AJ Bell.
"It also helps that the latest corporate reporting season has generally gone down well with the market, firing up share prices and getting more people to revisit the UK market for opportunities after a long period of it being deeply unloved.
"Reckitt looks like the most obvious takeover target on the FTSE 100 given a sharp decline in its share price following strategic mistakes and legal action around one of its baby formula products. The big unknown is whether someone would want to pounce now or wait for the legal issues to be resolved.
"Sainsbury's results didn't hit the right note with investors despite upbeat commentary from management. Underlying profit growth of 1.6% is pedestrian and a lack of dividend growth hardly signals a business going places. While it's done well by focusing on food and broadening its appeal with more value-led products, clothing sales remain miserable and Argos' performance is nothing to write home about."
*Further analysis of BHP's approach for Anglo American can be found here.
Meta Platforms
"An exceptional run for Meta's shares has come to a shuddering halt based on stock trading which followed the company's first quarter earnings update. The key sticking point for investors seems to be the big increase in capex spending on artificial intelligence.
"Previous concerns about a lack of discipline from Mark Zuckerburg have been reawakened, undoing some of the hard work the company has done to convince the market it has a tight rein on the purse strings.
"In 2023 Meta pledged a ‘year of efficiency' as it trimmed its workforce and it even announced a maiden dividend in February as advertising recovered across its social media platforms.
"Zuckerburg has form for spending significant sums without the promise of making any money in the short term – see the money allocated to the metaverse. Looking to come out on top in an AI arms race falls into a similar category with an admission that a lot will need to be spent before generating revenue.
"At least AI is better understood and more tangible, but it still requires a lot to be taken on trust that Meta is investing in the right areas and when it comes to Zuckerburg it seems the trust just isn't there."
Barclays
"Barclays' first quarter performance saw better-than expected numbers propelled by the UK arm, US consumer banking operations and its investment bank.
"Beyond the headlines, the investment banking operations were a mixed bag but the overall outcome was decent and this part of the business continues to justify its place in the wider group¬ – with Barclays historically batting off pressure to sell this arm.
"The bank is sticking with its short- and medium-term returns targets and it is on delivery of these that management including chief executive C.S. Venkatakrishnan will ultimately be judged.
"In the background Barclays is doing work to achieve delivery of these ambitions – siphoning off less profitable operations like its Italian mortgage business, the sale of $1.1 billion worth of US consumer bank credit card receivables to Blackstone and acquiring Tesco's banking operations."
Unilever
"There are signs of life in Unilever's recovery under Hein Schumacher with the business benefiting from strong trading in its beauty brand and across its 30 leading ‘power brands' where its resources are set to be focused.
"Despite coming in ahead of forecasts in the first qauarter, Unilever is leaving its full-year guidance unchanged for now. A dose of conservatism is probably no bad thing as it leaves scope for Unilever to under-promise and over-deliver.
"A return to growth for the ice cream division could have an important bearing on the valuation Unilever achieves when it sells or spins off this part of the business.
"Criticisms Unilever had gone woke and gone broke were probably overdone but having taken over in July last year, there are signs Schumacher is bringing the necessary focus to get the consumer goods giant firing on all cylinders again.
"While Unilever faces the prospect of customers switching to unbranded alternatives in the West, it has a compelling collection of brands and in emerging markets consumers do not have the same level of flexibility.
"Pressing ahead with a planned share buyback programme could provide support to the shares as Schumacher continues to implement his turnaround plan."
These articles are for information purposes only and are not a personal recommendation or advice.
Related content
- Thu, 02/05/2024 - 10:55