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“The FTSE 100 dipped from yesterday’s record close on Thursday morning after gains on Wall Street and mixed trading in Asia overnight,” says AJ Bell Investment Director Russ Mould.
“Increased hopes for interest rate cuts from the Federal Reserve helped US indices to advance on Wednesday, though some of that momentum had evaporated by the time Asian markets opened.
“Sterling enjoyed a modest uptick as UK GDP beat expectations. Recent strength in the pound against the dollar is not particularly helpful for the FTSE 100 given it negatively affects the relative value of its dominant overseas earnings.
“The index was also held back as several big names traded without the rights to their most recently declared dividends.
“Distribution group Diploma, usually a pretty solid citizen, was under pressure as its finance chief resigned following a ‘lapse in judgement’ at a recent company event.”
Admiral
“FTSE 100 insurer Admiral is humming along quite nicely, supported by a strong showing in its motor insurance business.
“In a competitive market, Admiral remains in the fast lane. The strength of its brand allows it to remain disciplined on price while still attracting new business. Admiral’s smart pricing tools have also helped to support underwriting profitability over time.
“The company is being rewarded for treating customers relatively well, at least in relation to its rivals, including during the pandemic. This is driving customer loyalty.
“Admiral recently swerved a potential hazard as the FCA decided to take no regulatory action on premium finance – effectively the cost borne by consumers if they opt to pay their insurance premiums in monthly instalments rather than in one lump sum.”
Aviva
“The first part of Amanda Blanc’s tenure at Aviva involved slimming the business down, selling off non-core parts of the group to allow the company to focus on its strengths and specifically on ‘capital-light’ businesses. The recently completed acquisition of Direct Line marks a shift into a new phase and the early signs are fairly positive.
“The integration is confirmed to be ‘moving at pace’ – an observation the company would have been unlikely to declare unless this was truly the case given it would make it a hostage to fortune – and Aviva is notably sticking with its guidance for a 10% uplift in earnings from the deal.
“Aviva looks to be building from a strong base. Not only was profit materially higher at a headline level but the combined ratio for its general insurance arm, which is a key industry measure of profitability, improved and the company generated more cash flow too.
“One area which was a bit soft was the bulk annuity market – where insurers take on firms’ pension liabilities – which may raise a few eyebrows given the strong performance reported by its peer Legal & General last week. Aviva says it is prioritising margins over volume.”
Antofagasta
“Chilean copper miner Antofagasta has already enjoyed a strong run for its share price, which explains the relatively muted reaction to today’s solid first-half numbers.
“The company is benefiting not just from a robust pricing environment for copper but also from improved operational performance and increased production.
“This helped underpin a big increase in the dividend. Antofagasta’s focus on copper – a key metal given its role in the energy transition – might make it an acquisition target, although the presence of a controlling shareholder in the form of the Luksic family is a potential complicating factor.”
National Grid / Centrica
“National Grid’s decision to sell its Grain LNG business to British Gas owner Centrica and an accompanying infrastructure investor reflects the company’s increased focus on its electricity networks. The company is investing huge sums in this area and the deal will provide a useful injection of capital.
“For its part, Centrica is acquiring a strategically important asset which offers long-term cash flow linked to inflation, so this looks like a deal which could be a win for both parties.”
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
