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“The FTSE 100 has failed to sustain positive momentum seen last week, with the index falling 0.3% to 7,468 on Monday. Tech, banking and natural resources are among the sectors struggling to win over investors, despite the presence of two M&A deals in the FTSE 100 – being the market reacting to Sky’s auction at the weekend and news of Randgold Resources merging with Barrick Gold,” says Russ Mould, Investment Director at AJ Bell.
Randgold Resources
“Randgold Resources’ proposed merger with Barrick Gold looks like an odd move with a potential culture clash and a poor outcome for UK investors who don’t want to hold overseas-listed shares.
“Rangold is an entrepreneurial business with a highly-respected boss in Mark Bristow. It has a track record of being able to succeed in difficult parts of the world and generating value for shareholders.
“Bristow has always emphasised the importance of engaging with people, whether that is with leaders of countries in which Randgold does business, local communities where its mine operates or shareholders. He has even included his mobile phone number on various company announcements, something unique among FTSE 100 chief executives.
“The miner has never rushed into making acquisitions until they could clearly add value; it has always tried to generate additional value through exploration and has maintained a tight focus on cost control.
“Barrick is the exact opposite – it is a big corporate machine which has paid the price for making bold moves at the top of the commodities cycle, resulting in significant impairment charges on acquisitions and large debt levels.
“It has previously come under fire for excessive executive pay and shareholders have seen their value of their investment slowly dwindle away as the company failed to deliver strong returns from its asset base.
“UK shareholders are arguably being dealt a poor hand with the merger. The London stock market listing is being cancelled and Barrick isn’t paying any premium to combine the two companies. The London market overall is also being punished as it will lose its largest gold miner, leaving only one company of scale on the exchange, being silver and gold producer Fresnillo.
“Mr Bristow has struck gold, in a sense, as he now becomes the boss of the world’s bigger gold miner. The 59-year-old has arguably reached the pinnacle of his career with this deal, yet he will be under considerable pressure to make sure shareholders aren’t left with an inferior company to a standalone Randgold.”
Thomas Cook
“Shareholders in travel operator Thomas Cook got a nasty surprise this morning as its pre-close trading update was brought forward by a day so a stinker of a profit warning could be served up.
“Combine this event with the news that chief financial officer Bill Scott is to stand down after less than a year in post – never a development likely to reassure the market – and you have the perfect recipe for a big sell-off.
“The company joins the litany of companies which have blamed either very cold or very hot weather for performance – weak sales for Thomas Cook’s package holidays were blamed on the summer heatwave.
“There has been more competition for those booking late getaways and this has had a negative impact on margins.
“Investors might legitimately ask why the firm wasn’t more conservative when it updated on trading at the end of July – surely it could have seen this coming.
“Worryingly the impact is continuing to be felt into Winter trading and all eyes now are likely to be on the guidance given for 2019 when the company reports its results for the 12 months to 30 September on 29 November.”
These articles are for information purposes only and are not a personal recommendation or advice.