Daily market update: OpenAI, Tesco, Thames Water, stamp duty holiday

Yesterday, the FTSE 100 bucked a weak market open by rising above its peers in Europe. Today, it’s done the opposite, says Russ Mould, Investment Director at AJ Bell.

Strength among financials and miners wasn’t enough to offset weakness in utilities, tobacco and energy stocks.

Experian’s shares tumbled after the emergence of a new competitive threat. Analytics software group FICO launched a new service that it believes could make US mortgage brokers and lenders less reliant on credit agencies such as Experian to calculate consumer credit risk.

OpenAI has become the world’s most valuable privately-owned company after completing a deal that placed a $500 billion valuation on the business. Current and former employees were able to sell some stock, helping them to crystallise some gains and allow various third-party investors to take positions. Reports suggest there was appetite for nearly twice as many as the actual number of shares on offer.

Tesco

Tesco’s position at the top of the UK supermarket pecking order looks more entrenched than ever after its latest set of results.

The company has sacrificed a little on margins to help maintain competitiveness, but this has paid off in spades as it has continued to win share from an already dominant market position. This is an impressive feat, particularly given Asda briefly threatened a price war earlier this year and the German discounters Aldi and Lidl continue to show ambition.

Tesco has managed to pass on some of the extra costs associated with higher employer National Insurance contributions and increases in the living wage as well as higher rents and higher prices for things like beef. It has also kept a tight rein on spending elsewhere, after all every little helps, and this underpins the upgrade to full-year profit guidance.

Tesco has taken advantage of its scale through bulk buying which in turn provides savings which it can share with customers. Its use of discounted Clubcard prices is helping to build loyalty among customers doing their weekly grocery shop.

The double-digit increase in the dividend is a clear sign of how confident the business is feeling as CEO Ken Murphy continues to build on the progress made by his predecessor Dave Lewis.

The problems Tesco endured in the first half of the 2010s now feel like a distant memory and, while there is no room for complacency, it is very hard to see the business being knocked off its perch in the near term.

Thames Water

A new rescue plan has been tabled to stop Britain’s biggest water utility being nationalised. Thames Water’s lenders are desperate to find a way to stop the company going into temporary ‘special administration regime’ as that could wipe out their investments. Their solution includes pumping more money into the business, not receiving any dividends during the turnaround programme, and writing off some of the company’s massive debt pile.

Thames Water has been sinking under the pressure of borrowings and has come under fire for poor performance. Rebuilding the company financially and operationally is a big task, particularly as there is also a need to spend a significant amount of money upgrading its infrastructure.

There is a plan to return the company to the stock market, but it’s hard to imagine anyone wanting to invest in Thames Water until its credibility is rebuilt.

The company’s CEO recently suggested it could take a decade to turn Thames Water around. Prospective investors would then want to see a sustained period of decent performance post-turnaround before regaining trust in the business. That suggests Thames Water won’t be returning to the London Stock Exchange any time soon.

Stamp duty holiday for newly listed UK stocks

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

There is speculation the government will make new UK stock listings exempt from stamp duty for their first three years on the market.

Investors pay 0.5% stamp duty on UK share purchases whereas many other countries don’t impose such a tax.

By granting a temporary exemption on newly listed companies, it would remove a major barrier for some people and potentially attract a broader pool of investors. This could also encourage more companies to list, knowing there are tax-related benefits on UK listings.

The government is keen to get more Brits investing and is looking at various ways to encourage greater participation rather than people simply saving in cash. UK stock market listing rules were relaxed in 2024 and offering a three-year stamp duty holiday on certain stocks is a natural next step.

A bolder move would be to remove stamp duty on UK stocks completely, yet the Treasury might be reluctant to give up that tax income stream until it has plugged the black hole in public finances.