Talks to end the war between the US and Iran are underway. Markets could see heightened volatility during the process as this won’t be a simple handshake to get it done.
To compound this situation, investors are on the edge of their seats regarding a seismic change in UK politics. Gilt yields moved up slightly on news Keir Starmer will step down as leader of the Labour Party and pave the way for a new prime minister.
Bond markets already rate the UK as higher risk, as illustrated by the rise in gilt yields this year. There is potential for gilt yields to go even higher if markets worry about who might become the next chancellor and if there will be radically different policies under a new prime minister.
Babcock was the biggest faller on the FTSE 100 after failing to upgrade guidance for its new financial year. Various governments have pledged to boost defence spending which has led certain investors to believe the earnings pipeline for defence contractors is vast, and there is now an element of disappointment.”
Ocado
Is Ocado about to deliver a new CEO? The grocery retailer has responded to speculation that Tim Steiner could be replaced by saying it regularly engages with potential candidates as part of long-term succession planning.
Steiner is co-founder and has had his work cut out over the past few years after a series of setbacks involving clients scaling back work.
The company has also disappointed with a slow pace of new client wins and investors have suffered share price weakness. Interestingly, the shares fell further on the latest comments around Steiner, which suggests that investors want to keep him.
The news will stir the debate about whether it is better to have a safe pair of hands to navigate through tough times or to bring in someone new with fresh thinking.”
EasyJet
Dan Coatsworth, Head of Markets at AJ Bell, comments:
EasyJet’s board doesn’t believe the company should fly away with Castlelake. It has rejected three offers, signalling the bidder is nowhere near the right price to get a deal over the line.
Castlelake has gone public with the bid details to try and win over investors and get them to encourage the board to reconsider the proposal.
The third bid of 625p cash per share is a 59% premium to the price on the eve of Castlelake’s bid interest first becoming public. Given this was an opportunistic bid at a point when EasyJet’s shares were dragged down by the Middle East conflict, comparing the bid to just before the Iran war kicked off gives a better idea of whether Castlelake’s bid is generous or not. It equates to a 35% bid premium which is less than the 43% average seen on UK-listed takeovers this year, according to AJ Bell research.
Reports suggest holiday demand has soared in recent weeks on the prospect of the Middle East conflict coming to an end. EasyJet shareholders may feel the company can quickly bounce back from the recent turbulence, and there is no need to sell out to Castlelake. After all, EasyJet was in a good place earlier this year and strategically it continues to make solid progress, including a fast-growing packaged holidays operation.
The big unknown since Castlelake first moved on EasyJet was how the bidder would get around the EU ownership rules. Regulations require all airlines with EU operating licences to be majority owned and controlled by EU nationals. Castlelake has found a solution in the form of two aviation executives – Peter Bellew and Mark Breen – becoming co-investors.
The market doesn’t believe Castlelake will succeed, given how the shares at 522p trade significantly below the latest bid. EasyJet’s biggest shareholders are the Haji-Ioannou family and a host of asset managers, all of whom are likely to have their eye on the long-term prize. Castlelake may have to dig a lot deeper to win them over.
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...
