FTSE holds firm, Melrose’s final attempt to buy GKN and Polymetal’s countless moving parts

“The UK stock market starts the week on a quiet note as the FTSE 100 is flat at 7,227,” says Russ Mould, investment director at AJ Bell.


“With just 5.76% of GKN shareholders acquiescing to its initial approach and with the 29 March deadline for acceptances fast approaching, Melrose has upped its cash and shares bid from £7.4bn to £8.1bn.

“The number of acceptances received so far is fairly high for a hostile bid. However, even with this sweetened and ‘final’ offer, the deal still faces material obstacles.

“At the end of last week, in an attempt to fend off Melrose, GKN agreed a $6.1bn deal with US firm Dana to merge its automotive business.

“Several MPs have argued the Melrose takeover approach should be blocked and The Pensions Regulator has expressed concern about Melrose’s ability to fund GKN’s pension scheme.

“Some of these fears may be unfounded. Although its ‘buy, fix, sell’ approach has been compared to private equity, Melrose can justly point to differences as it typically invests fresh capital in the acquired businesses rather than simply stripping out costs.

“Its long-term track record is also impressive, although it has never taken on a business of GKN’s size before.”

Polymetal International

“Full year results from Russian gold and silver miner Polymetal have more moving parts than a Meccano set. Gold sales volumes were up, silver sales volumes were down, capital expenditure was up, pre-tax profit was down and costs were up. The only major components that didn’t move were the average selling prices for its precious metal.

“Fundamentally Polymetal has been spending a lot of money on expansion projects and has also suffered from a 15% rise in the local currency versus the dollar. The currency pressure has taken a big bite out of its profit.

“Polymetal says consistent focus on high-grade assets has helped it deliver ‘superior returns on capital’ and that it has paid US$1bn in dividends out of free cash flow generated between 2012 and 2017.

“It also flags a 61% total shareholder return over three years, calling that ‘sector-leading’. It may be better than many of the diversified miners, but Polymetal’s performance actually lags its UK-quoted mid and large cap precious metal peers.

“Over the last three years, Hochschild Mining has delivered 289% total return, Centamin has generated 206% total return and Fresnillo’s result stands at 94.8%. Only Randgold Resources has lagged Polymetal with 32.6% total return. Total return is the combination of dividend income and a rise in the share price.”

These articles are for information purposes only and are not a personal recommendation or advice.