A thumping drop in the price of oil, all the way back to $90 a barrel, is helping get global stock markets off to a good start to the week, as the US and Iran pause hostilities once more amid efforts from Oman to broker a deal over the vexed issue of shipping passage through the Strait of Hormuz.
Sentiment has received a further boost from a sizzling stock market debut in China by silicon chip maker CXMT. Its near five-fold surge may help to soothe concerns about the AI trade after slumps in SpaceX and Korea’s SK Hynix after their recent offerings.
Brent crude had got back to $100 a barrel late last week, as Washington and Tehran exchanged fresh military strikes, but the Omani initiative gives investors fresh hope that a lasting agreement between America and Iran is within reach. Ever since the initial peace deal on 8 April, markets’ core view has been that military escalation had ended, with the result that de-escalation was next and a settlement the ultimate conclusion.
That in turn underpinned expectations for a retreat in oil back to the $70-a-barrel mark, where it lay before the initial American and Israeli strikes in late February. If this situation does come to pass, it may give central banks some breathing room on the inflation front, and this week sees the latest policy pronouncements from the US Federal Reserve, Bank of England, and the Bank of Japan.
Neither the Warsh-led Fed nor the Bank of England are expected to raise interest rates. Markets think both could do so in September, although Kevin Warsh has scrapped forward guidance, so investors will have to think for themselves.
As if oil and central banks were not enough to keep investors busy, more than a fifth of the FTSE 100’s members are due to issue results or trading updates in the week ahead, and AstraZeneca’s second-quarter figures have got things off to a solid start.
The pharmaceuticals giant reported a 6% increase in sales for the April-to-June quarter, in line with analysts’ expectations, while a 21% jump in earnings per share beat forecasts, albeit with the help of a lower-than-expected tax charge. Chief executive Pascal Soriot stuck to full-year sales and profits guidance and reassuring updates on the drug development pipeline also helped to boost the shares after the knock-back suffered earlier this month following disappointing results from the CARDIO-TTRansform Phase III trial.
Vodafone
Vodafone’s first-quarter update offers further evidence that the company is finally sending out the right signals, thanks to chief executive Margherita Della Valle’s overhaul of the telecoms giant.
In the past two years, the FTSE 100 company has sold its Spanish and Italian operations, disposed of a Dutch joint venture, and merged its UK operations with those of the one-time rival Three. The next is to take full control of VodafoneThree and this restructuring leaves the group looking leaner and meaner than the debt-laden, sprawling mess that Della Valle inherited. The more focused arena of operations and cleaner balance sheet mean Vodafone is able to compete more effectively in its core target markets across Europe and Africa and the first-quarter results show the benefits.
Management now expects the company to reach the top end of its profits and cash flow guidance for the year to March 2027, thanks to a good performance in Europe, notably Germany, also Africa, where the South African arm Vodacom has just completed a deal to give it a majority stake in Kenya’s Safaricom.
Takeover tidal wave rolls on
Another day brings another raft of takeover and acquisition activity in the UK stock market.
US private equity giants KKR and Energy Capital look to have finally won over the board of FTSE 100 constituent DCC Energy with the upgraded offer they tabled on 16 July. The Irish company’s board has now recommended the bid, which includes £65.25p a share in cash, a dividend payment of 147.22p per share and could come with a further 125p a share, contingent upon the proceeds raised from the sale of the target’s technology division.
The £65.25p cash offer comes to £5.6 billion and means DCC Energy is the recipient of one of eleven £1 billion-plus bids tabled in the UK market this year.
Shares in Pinewood Technologies finally got the chance to respond to Friday’s late announcement of a joint bid worth £545 million from management and private equity specialist Ridgeview. They shot up by a third.
The shares had taken a knock earlier this year when another private equity group, Apax, tabled a 500p-per-share bid only to walk away less than a month later.
The new bid is lower than that one, at 448p a share, so it will be interesting to see if shareholders are willing to accept. Lithia Motors, the buyer of the car dealerships two years ago, still has a near one-third stake in AIM-quoted Pinewood, so it will have a major say in whether the deal goes ahead, and the US firm seems to be supportive of the approach.
Meanwhile, Serica Energy has tabled a £146 million cash-and-dividend offer for Pharos Energy, whose hydrocarbon exploration and production assets are in Egypt and Vietnam. The recommendation from Pharos’ board suggests this approach will trump the one made by Ratio Petroleum back in June, which came to 28p per share in total, compared to the 32.67p implied by the Serica offer.
All of this activity takes the total value of live or completed bids in the UK this year to more than £70 billion, with an average takeover premium of 40%.
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...
