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“Insurers and miners help to lift the FTSE 100 on Wednesday with the blue chip index rising 0.2% to 7,153,” says AJ Bell Investment Director Russ Mould.
Prudential
“They say breaking up is the hardest thing to do, yet Prudential doesn’t seem to have any qualms about splitting its business into two. There has been speculation for years that the company’s Asian and US operations would be divorced from the UK business and that’s now been confirmed.
“Prudential argues that its UK business will have more control over its business strategy and capital allocation as a standalone entity.
“This is an interesting demerger situation. Investors will end up with shares in two separately listed businesses on the London Stock Exchange; both are expected to qualify for the FTSE 100 index.
“One may assume the UK operations, to be known as M&G Prudential, will be less appealing to investors as the non-UK interests have experienced faster growth. However, history suggests the demerged component of a business can still do well on the stock market.
“A study in 2003 by the Krannert School of Management found that subsidiaries spun out of companies outperformed their former parent by more than 20% over the first three years following the demerger; with most of the excess returns within the first 12 months of trading.”
Dignity
“Shares in funerals provider Dignity are up around 15% after a set of 2017 results which suggests the market may have been overly cautious in reacting to the new pricing strategy and profit warning in January.
“Earnings per share were 3% higher than expected due to lower tax but it is the commentary on recent trading under the new pricing structure which really catches the eye. In the first seven weeks the new ‘simple’ low-cost package accounted for 15% of funerals against the 20% the company had guided for 2018.
“An adage used to emphasise the importance of avoiding big losses on the stock market is that if a share price drops 50% you need a 100% advance just to get back to break even. Dignity’s shares fell almost exactly 50% in response to the update in January and after today’s rise they are still 48% below the levels they traded at before the announcement.”
Balfour Beatty
“Construction business Balfour Beatty has produced a set of 2017 results which helped it shake off some of the negative sentiment associated with the collapse of its peer Carillion.
“Pre-tax profit was up more than 10-fold at £117m as the turnaround instituted under chief executive Leo Quinn continues. Quinn has form in this regard having led transformations of defence firm QinetiQ and printing firm De La Rue in previous roles. It shows the difference good management can make.
“Balfour had come perilously close to meeting a similar fate to Carillion in 2014 when Quinn was parachuted in. Acquisition-led growth had made the business too complex and its finances too stretched, and the firm delivered a series of profit warnings to the market.
“A period of restructuring and consolidation followed, and it will be interesting to note going forward if Balfour can now take advantage of the reduced competition implied by Carillion’s demise.”
These articles are for information purposes only and are not a personal recommendation or advice.