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The FTSE 100 was lower on Tuesday as investors started to fret about the prospect of a government shutdown in Washington, says AJ Bell Investment Director Russ Mould.
Relations between the Democrats and Republicans are frostier than an Alaska morning, so markets are not confident on the prospects of agreeing a deal before midnight tonight.
One of the biggest short-term concerns for markets is the impact this would have on the release of government data – particularly the jobs number due on Friday – without which the Federal Reserve might not feel as confident about cutting interest rates.
Gold continued to glitter amid the uncertainty – touching new record highs above $3,850 per ounce and edging closer to the $4,000 mark.
The precious metal has doubled in price in two years, driven higher by a cocktail of central bank buying, geopolitical risks and concern about government debt in the developed world.
Fresnillo was once again one of the top risers in London as it benefits from the gold price strength.
Smith & Nephew
Smith & Nephew is a prime candidate to transfer its main stock market listing to the US, and its latest strategic decision would suggest it is already greasing the wheels, ready to make the move.
Key reasons for a company to switch its main stock listing from the UK to the US include being closer to customers and shareholders, chasing a higher valuation, and to make acquisitions. Smith & Nephew is now ticking off the boxes one by one.
Chief financial officer John Rogers is relocating to the US on the grounds that more than half of the company’s sales come from this country. Smith & Nephew has also declared the US to be a major source of future growth.
After a long period in the doldrums, its recovery efforts are now bearing fruit and it would make sense for the business to start to talk about the next phase of its career, rather than simply steadying the ship. That might include acquisitions down the line.
Royal Mail / Collect+
Royal Mail’s parent company has made its first strategic investment since being acquired by Czech billionaire Daniel Kretinsky in April. It is buying 49% of Collect+, a logistics network that uses convenience shops to enable people to send and pick up parcels via a range of couriers.
People used to rely on the Post Office to send goods, but they were constrained by standard business opening hours. A surge in demand to send and receive parcels led to a boom in alternative services, including the ability to pick up or send items early in the morning or late at night via newsagents. This convenience factor forced Royal Mail to adapt to a new world and stop solely relying on the Post Office to support its services.
Collect+ has proved to be an important part of Royal Mail’s distribution network and it now spies an opportunity to do even more. That includes self-service kiosks in shops that use Collect+ and for over-the-counter services via the network.
PayPoint launched Collect+ as a 50/50 joint venture with Yodel in 2009 and bought out the partner in 2020 for £6 million. It has now effectively resold that stake, minus 1%, for more than seven times higher. That’s quite a return on investment, and the price is an indication of how Royal Mail is serious about wanting to have the right foundation to survive and thrive in a highly competitive and evolving market.
ASOS
ASOS is one of several pandemic winners which have found life very difficult post-Covid. Some of that has been down to problems of the company’s own making and its failure to fix the roof when the sun was shining.
While it now has a management team focused on delivering running repairs to the business, they are doing so against a difficult backdrop.
That doesn’t mean no progress has been made; the company has cleared a lot of inventory and reduced costs – key steps to making it a more sustainable business moving forward. ASOS’s ‘Test & React’ model is enabling it to stay on top of the latest trends and an attempt to relaunch the Topshop brand could chime with increasing nostalgia for the nineties and noughties.
But none of these change the fact that ASOS expects revenue to come in below expectations. ASOS needs to set realistic targets and deliver on them to rebuild its credibility with the market.
Another potential threat is posed by shifting consumer habits, with younger people turning away from disposable fast fashion and buying stuff second hand from sites like eBay and Vinted.
AG Barr
Soft drinks outfit AG Barr has delivered a strong set of first-half results, but they lacked the extra fizz required to get the share price bubbling higher.
There was a slight increase in full-year guidance, but it was muted, despite strong profit growth and an eye-catching increase in margins. This reflects the company’s planned second-half investment to support its brands and scheduled changes to its production lines – requiring the use of external facilities.
Neither of these are bad things – it makes sense to invest from a position of strength – but the lack of big upgrades for the full year has left investors underwhelmed.
The substantial increase in the dividend is a show of confidence from management and the company’s ability to hike prices is an indication of the strength of its brand portfolio.
With plenty of cash on the balance sheet, even after the payout hike, there may be speculation about potential M&A to further diversify into new products.
Treatt
There are some strange goings-on in the ingredients sector. Three weeks after Treatt agreed a takeover offer from sector peer Natara, another industry player has muddied the water. Dohler has increased its stake from c.3% to 10% of Treatt. Normally, such a situation would be a precursor to making a counterbid, yet Dohler says it is not considering a takeover offer. Instead, Dohler sees the stake as an investment.
Natara has offered 260p cash per share and Treatt’s shares closed last night at 270.5p, implying that Dohler is not playing a simple game of arbitrage and buying below the take-out price to make a quick buck.
If Natara’s bid is successful, Dohler will be bought out with a cash payment. That makes the latest stake-building suspicious. Dohler might be taking a bet that Natara’s bid isn’t enough to win over shareholders and that securing a 10% stake puts it in prime position to work closely with Treatt should it remain independent.
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...
