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“It’s a relatively quiet start to the new trading week among UK stocks with very little corporate news from large companies to drive trading volumes. “Strength in miners and supermarkets is offset by weakness in banks and utilities, leaving the FTSE 100 flat at 6,839. It is a similarly placid experience with stocks in Continental Europe with only small gains across markets in France, Germany and Spain. “Asian markets fared better thanks to China’s central bank cutting banks’ reserve requirements in an effort to boost the economy. Hong Kong’s Hang Seng index advanced 0.8%, China’s SSE Composite index rose 0.7% and Japan’s Nikkei index jumped nearly 2.5%,” says Russ Mould, Investment Director at AJ Bell.
BT
“There is speculation that BT could become a takeover target for Deutsche Telekom as a restriction on the German company’s ability to buy more shares will soon be lifted.
“The potential suitor took a 12% stake in BT when it sold mobile phone operator EE to the British company for £12.5 billion three years ago. Orange owned half of EE at the time and took its sale proceeds in cash and shares; it currently has a 2.8% stake in BT, previously 4%.
“The EE transaction included a clause whereby Deutsche Telekom could only increase its stake from 12% to a maximum of 15% in the three years after completion if it bought some of Orange’s shares in BT. The restriction will be lifted on 29 January 2019, meaning Deutsche Telekom will be free to make a full bid, should it wish.
“While Deutsche Telekom will have be frustrated with its investment in BT as the shares have halved in value since the EE deal completed, this weakness presents an opportunity to buy the business at a cheaper price. The big question is whether it really wants to own the company given a troubled history in recent times.
“BT has been a bloated, lumbering beast for many years with operational and financial issues. It is now going through a streamlining process to become leaner and meaner. For example, costs are being taken out of the business through widespread staff cuts and it is expected to make asset disposals.
“New chief executive Philip Jansen starts on 1 February and the Deutsche Telekom takeover speculation will no doubt be one of the big questions posed by shareholders and staff as soon as he begins.”
Dunelm
“Retail slump, what retail slump? Today’s update from homewares seller Dunelm looks great. Probably the most significant takeaway is a 9% like-for-like revenue increase in the second quarter, which included Christmas.
“Online sales were up strongly but unlike some retailers this was not dragged down by store sales which were also up by an impressively robust 5.7%.
“The flagged double-digit increase in first half profit may be flattered somewhat by the resolution of problems relating to the integration of WS Group, encompassing the Worldstores, Kiddicare and Achica brands, acquired in 2016.
“These negatively affected numbers in the first half of the previous financial year and meant Dunelm faced relatively easy comparatives this time round.
“This could also explain why management are not getting carried away, expressing caution on the outlook thanks to ‘unprecedented levels of uncertainty’.
“It is good to see Dunelm is not resting on its laurels with plans to launch a new, more flexible web platform this summer. In an unforgiving retail environment, delivering the best possible customer experience is crucial.”
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