Quilter/Old Mutual & Countrywide

“It’s a bad start to the week for the FTSE 100, slipping 0.6% on Monday morning to 7,633. Share price weakness in banks, drug companies and natural resources producers act as the biggest drags on the market,” says Russ Mould, Investment Director at AJ Bell.

Quilter / Old Mutual

“FTSE 100 life insurer Old Mutual has finally spun out its UK wealth management business as a separately-listed company. Quilter got off to a good start in early trading, rising 6.2% to 154p. Yet longer-term there are reasons to suggest it may not have a smooth time on the stock market.

“First, more than half of Old Mutual’s shareholders are based in South Africa. They are all getting free shares in Quilter as part of the demerger, alongside Old Mutual’s other shareholders. You have to question whether South Africa-based individuals would really want exposure to the UK wealth management industry, particularly as Quilter isn’t a market leader in any of its fields.

“That leads us to the second point: Quilter is a very broad business and, while operating in a growth industry, it doesn’t really stand out as having any particular strengths versus its peer group.

“Third, it is going through a complicated IT upgrade which is a major risk often underappreciated by investors. Any IT failures could have negative implications for the business, just as we’ve seen with numerous other financial companies undergoing technology upgrades such as Barclays Stockbrokers and Aviva.”

Countrywide

“Estate agent Countrywide is facing three big challenges at present which are reflected in a new profit warning.

“The housing market is weak; its industry is facing disruption from online competitors which don’t have the costs of running high street offices; and the company is carrying too much debt.

“Countrywide abandoned plans to directly rival the likes of Purplebricks in favour of a back-to-basics approach back in March and it does at least seem to be making some progress here.

“Addressing the balance sheet issues is a must as until then there will be a question mark over whether the business is being run in the interests of shareholders or creditors.

“However, plans to cut its borrowing in half by issuing shares implies heavy dilution. We should find out the scale of this dilution when the company reports its first half results on 26 July.”

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