Daily market update: French equities, Computacenter, Anglo American, Dunelm

“A spate of deal-making fired up equities, with many of the main market indices advancing in Europe and Asia. Futures prices also imply a decent start to Wall Street when US markets open later,” says Russ Mould, Investment Director at AJ Bell.

“Anglo American unveiled a deal to gobble up rival copper miner Teck. On a smaller scale, Novartis said it would buy US clinical biotech firm Tourmaline Bio for $1.4 billion. Yesterday, US lender PNC Financial moved on FirstBank in a $4.1 billion deal, and quantum computing firm Infleqtion announced plans to float in the US via a SPAC, valuing it at $1.8 billion.

“This momentum has fired up the markets and provided a new source of energy as investors run the numbers on deals and try to spot the next takeover targets. Investment bankers are also rubbing their hands with glee, hoping to scoop up big fees for advising on corporate deals.

“The CAC 40 jumped 0.6% despite political chaos in France. There were broad-based gains, with energy, consumer cyclical, tech and healthcare leading the way. Investors are forward-looking and they’re focused on a new prime minister bringing change to the country.

“Among UK mid-caps, Computacenter jumped on a bullish update, with North America firing on all cylinders and the UK returning to growth.”

Anglo American

“Anglo American has turned from prey to predator. The deal to buy Teck Resources, if it completes, means Anglo has not only pulled itself out of a hole, but also sends a message to mining peers that it is not a pushover.

“One minute Anglo was fighting off bid interest from BHP, leading to a radical restructuring to show investors it was fit for the future; the next it is swooping on a business that arch-rival Glencore tried and failed to buy.

“Combining with Teck will give Anglo greater scale in copper, a commodity in strong demand thanks to its key role in the transition to clean energy. The metal is used in everything from electric vehicles to wind turbines, as well as being a crucial component in electronic devices like phones and laptops.

“The big unknown is whether adding Teck’s assets to the portfolio is enough to revive Anglo’s share price beyond the initial jump amid excitement about the merger.

“Transformational deals rarely add value as companies either overpay, cost synergies often aren’t as strong as first thought, and cultural clashes can lead to all kinds of disruption.

“Anglo doesn’t have a perfect history of deal-making. For example, the purchase of UK mining group Sirius Minerals has yet to yield any benefits. It also failed to spot the threat of lab-made diamonds and hung on to a majority stake in De Beers for too long. It should have offloaded the business while the diamond industry was sparkling, not on its knees as it is now. Diamonds have been non-core to Anglo for a very long time, and it is now paying the price for not jettisoning them at the right time as it might only get peanuts for De Beers, if a buyer can be found at all.

“Despite the uncertainties around whether the Teck takeover will truly generate value for the company and investors, there is one immediate benefit. The deal is a win for the UK stock market as the enlarged Anglo Teck group will have its primary listing in London. Anglo clearly believes the UK works well as a listing venue and that sends a positive message to other businesses undergoing M&A.”

Dunelm

“Dunelm is holding its head above water in a tricky retail environment, yet investors clearly want more judging by the negative market response to its latest results.

“Sales and profits have moved higher, and the company is cautiously optimistic about its future. However, profit margins have shrunk slightly, net debt has nearly doubled, and the company says it hasn’t seen any signs of a sustained consumer recovery.

“Dunelm needs to keep the ship steady in this tricky environment and it’s doing a fair job. Chief executive Nick Wilkinson can be proud of the business he’s helped to grow as he bows out with this set of results.”