Reckitt acquisition relief, Ted Baker caught up in retail gloom and M&C Saatchi bucks the advertising agency trend

“The FTSE 100 continues to fall on Thursday, down 0.2% to 7,025 amid weakness in insurers and tobacco stocks and after the US Federal Reserve raised interest rates on Wednesday night,” says AJ Bell Investment Director Russ Mould.

Reckitt Benckiser

“Consumer goods business Reckitt Benckiser is the top FTSE 100 riser as it abandons plans to buy the consumer healthcare division of US pharmaceutical giant Pfizer. The suggested price tag was as much as $20bn.

“Given that the weight of evidence suggests most acquisitions destroy rather than create shareholder value, the market reaction looks very rational.

“Investors need to be wary of firms which make multiple acquisitions, especially if they are big and seen, or described, as transformational as the scope for something going wrong is considerable – as shareholders in Marconi, Royal Bank of Scotland or more recently Carillion will attest.

“This is something for investors in GlaxoSmithKline to bear in mind as that company is left in pole position to acquire the business.”

Ted Baker

“Ted Baker has become the latest retailer to miss earnings expectations. Its latest set of full year results showed 11.7% pre-tax profit growth to £73.5m, but the market was expecting closer to £75m.

“While that’s only a small miss, the market is currently unforgiving for any company that doesn’t issue a set of results that are in-line, or beat, expectations as well as a positive outlook statement.

“Ted Baker’s debt has gone up as a result of higher working capital requirements. The dreaded weather has not helped the start of its spring/summer season; costs have gone up; and weak footfall in the UK would suggest a cautious approach to domestic trading.

“On a short term basis life is clearly going to be hard for Ted but on a long-term basis you have to consider its superior track record and ability to navigate through market challenges.

“Ted’s Pre-tax profit has increased 22-fold over the past 20 years and the dividend has also gone up nearly every year in that 20-year period.”

M&C Saatchi

“Advertising agencies have been under pressure recently on signs they are being bypassed as advertisers deal directly with the big social media platforms like Facebook and Twitter. However, M&C Saatchi bucks the negative trend with its 2017 results.

“Double-digit advances in revenue, profit and the dividend help lift the shares in early trading. This was achieved despite a poor contribution from its US business. The outlook for 2018 is similarly positive.

“The company is reaping the benefits of several years of investment, setting up several new offices in a range of different geographies over the last decade or so.

“It has long-standing pedigree in the industry, set up by brothers Charles and Maurice Saatchi who were behind the ‘Labour isn’t Working’ campaign, seen as a significant contributing factor in the Conservative Party winning the 1979 general election.”

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