Daily market update: FTSE 100 lifted by miners, Vistry, UK takeovers back in focus

The FTSE 100 bounced back on Wednesday despite continuing tensions in the Middle East and as the political situation in the UK remained fraught.

Keir Starmer is set to meet with one of his mooted leadership rivals, health secretary Wes Streeting, ahead of the King’s Speech when the embattled prime minister is expected to announce a raft of legislation to try and stabilise his premiership.

Starmer’s survival has seen the 30-year gilt yield retreat a little from the near three-decade highs it hit yesterday, but it remains at elevated levels.

Global events remained the key driver for the FTSE 100 as the mining sector did much of the heavy lifting, supported by stronger metals prices. The spotlight is on rapacious commodities consumer China thanks to the summit between Donald Trump and his counterpart Xi Jinping.  

Tuesday’s higher than expected inflation reading from the US offered the latest indication of rising prices and helped to temper expectations for any rate cuts from the Federal Reserve this year.

Vistry

To build from the ground up you have to level expectations, and it feels like new Vistry boss Adam Daniels has done that with his first major update since taking charge at the housebuilder.

Prioritising cash generation over profit looks a sensible decision for a company carrying a meaningful amount of debt. However, it does mean first-half earnings will be substantially lower year-on-year as the company sells its open market homes at a discount to clear inventory.

There have also been delays on its affordable housing partnerships projects as the industry goes through a period of transition.

The share buyback programme has been put on hold, meaning shareholders are not being compensated as much for their patience while they wait for a turnaround of the business to gain traction.

Even getting profit towards the middle of forecast levels for the year, or in other words at the lower end, will require an improvement in the second half – a situation which can be a recipe for downgrades down the road.

Rising costs associated with the inflationary pressures unleashed by the Iran conflict are a wildcard factor over which Vistry has little control.

A lot might now ride on Daniels’ strategy update in September after he’s had a chance to fully review the group and its operations

Babcock

Having stormed ahead for much of the past 18 months, Babcock’s share price has taken a pause for breath in recent weeks, but its latest update has helped to restore momentum.

Investors were prepared to look past a charge relating to a Royal Navy contract, agreed in 2019 at a fixed price and where costs have escalated, to focus on the unchanged guidance for the current financial year and a new £200 million share buyback.

This provision means the full-year results are likely to be late which can spook the market, but Babcock has given plenty of detail on its financial performance in its pre-close trading statement, so investors don’t feel like they’re in the dark.

Thanks to its relevant expertise, Babcock is benefiting both from increased spending on defence but also from a growing focus on nuclear power.

One area of concern for the business may be the growing use of drone warfare and a suggestion this might render some expensive military kit obsolete, but there is little sign of that yet in Babcock’s order book which remains healthy.

TUI

Holidaymakers are getting nervous about fuel shortages ruining their week in the sun. TUI has flagged that customers are booking closer to departure, which is negative for its earnings visibility. It may either see a last-minute rush for deals, or worst-case scenario is that consumers simply holiday at home and TUI loses out.

The holiday and airline industry is at pains to stress there are no current fuel shortages. However, consumers are getting jittery given the US/Iran war rumbles on and oil supplies are not flowing freely. There needs to be greater clarity on alternative sources of fuel to the Middle East before the public feels convinced to hit the buy button for their summer holiday.

Intertek / Gamma / UK takeovers

Dan Coatsworth, Head of Markets at AJ Bell, comments:

There is a right price for everything as Intertek investors have just found out. Having batted away bids from EQT faster than a fly swatter, Intertek has now changed its tune following another increased offer. It now indicates a willingness to support a deal if EQT makes a formal bid at the proposed £60 a share offer.

Work has now been paused on its strategic review which leaned towards splitting the company into two, and the ball is now in EQT’s court to make the bid.

The wording of the announcement gives the impression that shareholders have put pressure on Intertek’s board to support a deal.

Intertek hasn’t traded as high as £60 a share since 2021, and such a bid would represent a 38% premium to the price just before EQT’s interest was originally disclosed. That’s in line with the average bid premium year-to-date on the UK stock market, according to analysis by AJ Bell. Shareholders might feel it is better to take the cash now as there is no guarantee that a break-up of Intertek via a demerger would lead to a quick value uplift.

One by one companies are being picked off the UK stock market, with Gamma Communications also looking like it could join the queue soon. Private equity group Providence has been confirmed as being one of the parties in talks about a potential bid. Gamma disclosed on 7 April that it was talking to various entities to see if it was better for investors to sell out to a third party rather than going it alone.