Dairy Crest / Provident Financial and Pearson

“The FTSE 100 is back in business with a 0.3% gain to 7,186, led by miners Evraz, Fresnillo and Glencore. Chatter about Just Eat being a takeover target also fuels share price momentum in the food ordering platform. “Over in Japan, the Nikkei failed to extend its winning streak with a 0.2% decline to 21,425,” says Russ Mould, Investment Director at AJ Bell.

Dairy Crest / Provident Financial

“Takeover activity has returned to the UK stock market with both Dairy Crest and Provident Financial receiving bids.

“Cathedral City-owner Dairy Crest sold its milk business in 2015 to focus on cheese and spreads. Unfortunately shareholders haven’t been richly rewarded over the past few years with the share price drifting sideways and then downwards.

“The bid from Canada’s Saputo will be a pleasant surprise to investors who may be smiling like the cat who got the cream at the news.

“The cash offer gives them a chance to get out of a fairly pedestrian business and at a price that hasn’t been seen since September 2017.

“Provident Financial is a different kettle of fish. It is being taken over by a much smaller competitor which isn’t paying a bid premium. Shareholders aren’t getting a cash exit and they will end up owning 87.8% of the enlarged group via the all-share transaction.

“The suitor, Non-Standard Finance, knows all about Provident Financial as its founder and chief executive John van Kuffeler used to be CEO and then chairman of Provident for 22 years until 2013.

“He is obviously confident of being able to revive Provident which has been struggling for some time. “This deal looks ballsy and Non-Standard Finance could be punching above its weight. It seems like an opportunistic move to kick out the Provident management team and for van Kuffeler to regain control of his former empire.”

Pearson

“If academic publisher Pearson really wants to return to growth in 2020, as it pledges to alongside today’s full year results, then it probably needs to accelerate its transition to digital.

“Pearson has faced a big challenge in recent years as big expensive textbooks have been shunned by students, schools and universities in favour of online or second-hand alternatives. Profit growth in 2018 was only achieved thanks to significant cost-cutting.

“The direction of travel is towards a digitised future, and the recent sale of its US K12 school textbook business will help, but 38% of the business remains non-digital with the digital and digitally-enabled (things like computer-based tests in physical locations) bits of the group ticking up slightly to 34% and 28% respectively.

“Within the results themselves there were items which suggest accepting Pearson’s narrative of expansion from 2020 requires quite the leap of faith.

“Revenue from US testing was down and is expected to be again in 2019 and its ‘core’ markets in Australia, the UK and Canada are expected to repeat a flat 2018 performance again this year.

“You also have to consider that Pearson’s competitors in the education market will be pushing hard on the digital side which could act as a constraint on growth.”

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