Melrose Industries, Centrica and Sirius Minerals

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“The FTSE 100 is now trading at a five-month low as trade war concerns escalate. Software, mining, tobacco and banks are among the worst performing sectors so far this year with stocks like Vodafone, Imperial Brands and HSBC being particularly disappointing. “A continuation of the current downward trend could cause investors to lose confidence, meaning we face a difficult few months ahead unless the US and China can sort out their differences, key economic data in major countries starts to improve and major corporates surprise on the upside with earnings,” says Russ Mould, Investment Director at AJ Bell.

Melrose Industries

“While arguments that part of the country’s engineering heritage had been sold off dominated the response of the media and politicians after Melrose Industries completed the £8.1bn capture of GKN earlier this year, the key concern for investors was that the company might have bitten off more than it could chew.

“First half results should go at least some way to allaying those fears as Melrose reports significant progress with its turnaround of the business.

“It is still early days though, and the company did not respond to speculation it was looking to sell off parts of GKN amid a wider break-up of the group.

“If Melrose can pull off a successful restructuring of GKN it would be the ultimate endorsement of a ‘buy, improve, sell’ model which has taken it from a £13m cash shell on AIM in October 2003 to a £11bn FTSE 100 constituent.

“The costs of getting the deal across the line in the first place are reflected in a statutory pre-tax loss of £303m – compared with a £47.8m profit a year ago.”

Centrica

“A price cap which will limit the amount Centrica’s British Gas operation can charge customers hardly seems like cause for celebration, but the key point is that it will address the uncertainty which has dogged the stock in the last couple of years.

“There’s nothing the market hates more than a lack of clarity and now the level of the price cap is known analysts can reflect it in their earnings estimates. This should help reinforce the credibility of earnings and most importantly dividend forecasts.”

Sirius Minerals

“One of the worst things to happen to a mining company and its shareholders is the need to revisit calculations for building a new project.

“Constructing a mine can be costly and it certainly isn’t unusual for miners to lift their capital expenditure requirements by a million dollars or so during advanced development stages.

“However, when additional funding requirements are a nine figure sum, you’re looking at serious embarrassment and this is exactly the situation facing Sirius Minerals.

“The company, which is hoping to build a large polyhalite mine in Yorkshire, says it needs an additional $400m to $600m which is mainly connected to the higher costs from its transport system tunnel.

“This is a substantial setback for Sirius which believes it could create over 4,000 jobs and generate £100 billion for the UK economy over the next 50 years.

“The path to building a mine is rarely smooth and Sirius has already overcome significant challenges such as getting permission to construct a huge project in a national park.

“Its management team will undoubtedly have a stressful time near-term while they address the funding issues, but we don’t appear to be at the stage where the market doubts that its mine will be built. The key question is by how much existing investors will be diluted in order to get the money. And that is exactly why the share price has been hammered on the funding news.

“The market hates bad news on cost blowouts and there is now the fear that Sirius could dilute existing investors. Either by raising the new money on the market at a much lower share price than has been seen this year or by bringing in a strategic partner who would buy new shares in exchange for cash.”

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