Capital & Counties, TalkTalk and Electrocomponents

“The FTSE 100 halted yesterday’s decline by holding firm at 7,792 on Thursday. The minutes of May’s Federal Reserve monetary policy meeting gave no hint of a faster pace of tightening in response to inflationary pressures. Investors are now taking a moment to catch their breath and try to make sense of where markets could head next and, in particular, the outlook for trade relations between China and the US,” says AJ Bell Investment Director Russ Mould.

Capital & Counties

“News that Capital & Counties may split into two businesses could be an interesting move. The Earls Court assets have long been the thorn in the company’s side compared to its more vibrant Covent Garden properties.

“By creating separately-listed entities, the standalone Covent Garden business would be much more attractive to investors.

“The Earls Court component has been beset with political issues linked to a large redevelopment project and waning appetite for luxury London properties.

“This part of Capital & Counties has recently been the subject of takeover speculation and a deal could be easier to strike if a suitor didn’t have to factor in the prime Covent Garden assets in any conversation.

“However you also have to question whether a takeover is plausible near-term for the Earls Court assets as demergers are often Plan B if a company has failed in its efforts to secure a trade sale (Plan A).

“Demergers can be interesting situations from a stock market perspective. Various studies have found that subsidiaries spun out of companies outperformed their former parent within their first year of trading. It remains to be seen whether such a trend will apply to Capital & Counties.”

TalkTalk

“TalkTalk last year said it would simplify its business and today’s proposal to sell its direct B2B business to The Daisy Group is proof that it is delivering on its word.

“Full year results contain lots of positive comments about its lowest ever full year churn and highest ever quarterly net adds. However it is still difficult to ignore some of the other numbers.

“The dividend has been cut by 61% and the business is loss-making when looking at the statutory numbers.

“TalkTalk has come last for the second year running for broadband customer service, according to a recent report from regulator Ofcom.

“Addressing customer satisfaction will have to be high up on the list of the company’s priorities. It will be hard to achieve sustained customer growth – the other part of its turnaround strategy alongside business simplification – if the business continues to be dogged by a reputation for poor service.”

Electrocomponents

“Its first acquisition for several years, slightly better than expected results and strong forward guidance are combining to give electronics distributor Electrocomponents a lift on Thursday.

“The company, which provides everything from tools to safety equipment and semiconductors to the engineering sector, is paying £88m in cash for Warrington-based IESA.

“While the acquisition is relatively modest, this foray into M&A after a long hiatus reflects management confidence in the group’s prospects.

“And with the company throwing off plenty of cash and the balance sheet looking very healthy, the market will be watching closely to see if this is the first in a series of deals.

“Impressively, and despite demanding comparatives with last year, the first few weeks of the current financial year have seen ‘strong’ revenue growth.”

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