The FTSE 100 took its cue from weak trading in Asia and fell back amid a lower open for most other European markets.
Brent crude oil prices remain near one-month highs as tensions continue to mount in the Middle East.
Fragile sentiment is leading to a continued pullback in memory chip stocks after their gravity-defying run as investors fret about elevated valuations.
In London, shares in specialist distribution group Diploma shone as the company upgraded guidance for the third time this year, underlining the importance of providing essential components to companies.
Engineering stocks were lifted by a bumper bid for Rotork, while utilities names and retailers were among those to lose ground.
Ocado
Once you remove one-off fees linked to the closure of customer centres, it’s clear that Ocado is running in quicksand. The joint venture with Marks & Spencer looks healthy, but that is not its bread and butter.
Following boardroom drama about long-term succession plans, Ocado needs to regain its mojo and find a new way to drive sales and earnings. Scrapping exclusivity clauses in most of its overseas markets theoretically gives it a chance to woo new customers. It just needs to close more deals to help convince the market the business isn’t a busted flush.
Ocado’s challenge is to do things on a bigger scale and with greater momentum.
Investors have been waiting an eternity for financial results that show clean profit and substantial cash flow. Instead, there is a set of accounts that mention the word ‘adjusted’ 90 times.
To call the results messy is an understatement. This reflects a business that continues to take one step forward and one step backward.
The market hates the latest results, sending the share price to a 13-year low.
Foxtons
The Renters’ Rights Act has caused all kinds of problems for Foxtons. It’s given more power to tenants, and they’ve been quick to take control. This includes being able to give notice and leave before the end of what used to be a fixed-term lease.
Foxtons has been hit by tenants getting out of contracts earlier than previously expected, meaning it’s had to reverse £3 million worth of previously recognised revenue.
At the same time, the sales market has been miserable. Expectations for interest rates to stay higher for longer is bad for mortgage pricing and that’s caused affordability issues for many aspiring homeowners.
For those able to get financing, it’s a buyer’s market which means many people are snapping up properties below asking price. Foxtons charges a commission based on a percentage of the final sale price – so lower prices mean a lower cut for the estate agent.
Not all sellers want to let their home go on the cheap, so many people are sitting tight and either waiting for the right offer or they’re pulling their home off the market. All this adds up to problems for Foxtons as overall there are lower transaction volumes.
UK takeovers
Overseas predators are continuing to target UK companies, further diminishing the breadth, depth and quality of the London market.
The latest name to fall prey to a bid is engineer Rotork. The UK is home to several UK industrial businesses who are global leaders, albeit in niche areas.
A takeover approach from Swiss engineering giant ABB is likely to see their ranks thinned, with Rotork’s board having signed off on the deal and shareholders likely to fall in line given the offer is in cash and pitched at a healthy premium.
Energy group DCC also looks likely to join the queue for the exit after a slight improvement in the terms on offer from a consortium made up of US buyout firm KKR and Energy Capital Partners.
The deadline for a firm offer has been pushed back towards the end of the month, and the deal looks likely to go through. Further down the ranks, pawnbroker Ramsdens has agreed to an improved bid from US rival FirstCash.
These potential departures would be less of an issue if there was a healthy pipeline of new names listing in the UK. Given this isn’t the case, there will be concern about what the departure of names via takeovers mean for the diversity and depth of a market which has already lost relevance compared with its global counterparts.
TSMC
If investors were looking for cracks in the AI growth theme in TSMC’s quarterly results they’d struggle to find any after the chipmaker delivered another huge surge in profit.
Like first-time park runners, analysts are struggling to keep up with the pace of TSMC’s growth. Comments from chief executive CC Wei suggest the current bumper demand can last until the end of this decade.
The relatively muted market reaction likely reflects the more than doubling in TSMC’s share price over the last 12 months but also a couple of elements which may have given investors pause for thought.
TSMC is expanding outside of Taiwan, including in the US, and this put some pressure on margins. Separately, the company has once again increased its projections for capital spending for the year.
While the case for boosting capacity is clear at a time when there is a large gap between supply and demand, shareholders will want TSMC to retain some discipline even as it looks to meet orders piling up.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
