Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
“The FTSE 100 took a step back on Wednesday, falling 0.6% to 7,110 with notable weakness in the big consumer goods companies such as Unilever and Reckitt Benckiser. “Markets were also weak across mainland Europe and parts of Asia including a 0.4% decline in Germany’s DAX index,” says Russ Mould, Investment Director at AJ Bell.
Taylor Wimpey / Rio Tinto
“Against a backdrop of growing concerns about corporate debt levels, a handful of companies are bucking the trend and are swimming in cash. It means their investors are likely to get very generous dividends or reap the benefits of share buybacks.
“However, large cash positions may also be causing management to start thinking about acquisitive growth and prompt a spending spree which isn’t necessarily a good thing.
“Taylor Wimpey has achieved a new record high net cash level at year-end, rising from £511.8m at the end of 2017 to £644.1m a year later. That’s even after paying around £500m in dividends over the year. A pledge to pay circa £600m in dividends during 2019 clearly won’t be a problem to fulfil. And the cash-generative nature of its business means the housebuilder could still have plenty of money left over.
“Housebuilders in general haven’t given any signals that they want to start making acquisitions but they are in a strong enough financial position to change their minds.
“Miners certainly look like prime candidates to go on a buying spree. For example, Rio Tinto has just moved into a net cash position of $255m versus $3.84bn net debt a year earlier.
“Rio will have returned $13.5bn relating to its 2018 financial year if you factor in ordinary and special dividends announced at its full year results, proceeds from selling assets and share buybacks it has pledged to do but not yet carried out.
“We’ve already seen the gold mining sector get swept up in a wave a consolidation, so will it be the turn of the diversified miners next?
“Many of them overpaid for acquisitions in the last commodities boom so the appetite may not be so strong today. However, mining bosses have the luxury of being able to make big strategic decisions and they will inevitably argue that ‘it is different this time’ with mega takeovers and justify any deal through synergies and economies of scale.’
ITV
“Traditional rivals, BBC and ITV are teaming up like characters from a buddy cop movie to take on the likes of Netflix and Amazon with a UK subscription-based streaming service BritBox.
“The joint venture has already enjoyed a successful pilot in the US and given the wealth of content both parties bring to the table you can see it having a decent pull for viewers. However, the regulators still need to sign off on the plan – with the BBC’s status as a public service broadcaster a possible sticking point.
“The platform will require significant investment, particularly if the partners are to follow through on plans to create new content for the Britbox platform. Spending by Netflix on original content is projected in some quarters to hit $15bn in 2019.
“You can though certainly see the attractions for ITV as it looks to wean itself off its reliance on TV advertising, something which scarred its full year results.
“Though ad revenues were better than feared in 2018 – rising 1% as online came to the rescue, the first four months of this year are expected to see a worrying 3% to 4% decline. Plus, there’s no World Cup this year to provide a boost over the summer.
“The company continues to grow its ITV studios business, but revenue from TV production can be unpredictable as it requires coming up with concepts which will be a hit with audiences.”
Experian
“News that credit check company Experian is pulling its £275m takeover of ClearScore, after the CMA outlined concerns over the deal in November, offers a further indication that the UK’s competition authorities are taking a tougher line on corporate combinations. The news follows the regulator’s implied thumbs-down to the merger between Asda and Sainsbury’s earlier this month.”
These articles are for information purposes only and are not a personal recommendation or advice.