CMA hit for Rentokil and Games Workshop back on (table) top

Friday, April 12, 2019 - 10:27

“Though there has been some volatility along the way, for the most part the FTSE 100 has been running to stand still this week, with the index flat on Friday morning and on course to close the week a smidge lower.

“Trading platform Plus500 was a notable faller in London, down more than 40% at one stage as its first quarter revenue collapsed,” says Russ Mould, Investment Director at AJ Bell.

Rentokil

“The UK’s Competition and Markets Authority seems to have found both its voice and its teeth.

“Fresh from apparently nixing the tie-up between supermarkets Asda and Sainsbury’s, launching a probe into the funerals market and tackling the way loyal customers can be penalised across a range of markets, the CMA has now weighed on pest control firm Rentokil’s acquisition of a rival business from Mitie.

“The argument is that the £40m deal will restrict choice and lead to higher prices for customers and, though Rentokil is likely to dispute this, boosting market share is a way of sustaining profitability, at least some of which will be achieved through pricing.

“Rentokil can’t hang about if it wants to salvage the deal given it faces a more in-depth probe if it can’t address the concerns within a couple of weeks.

“This is a second clash with the CMA for Rentokil in 2019 after it was ordered to sell large supply contracts picked up through its takeover of Cannon Hygiene.

“The apparently more interventionist trend on the part of the regulator suggests companies may have to consider their acquisition strategies carefully in the future to save wasting valuable management time and money on deals which are likely to attract the CMA’s ire.”

Games Workshop

“To the uninitiated the appeal of the fantasy miniatures and table-top war games sold by Games Workshop may be something of a mystery but it is hard to ignore the successful niche the company is ploughing.

“Fresh from a slightly disappointing set of half year results in January the company is back in the game with today’s news of a higher than previously guided profit for the full year. A special dividend provides a cherry on top for shareholders.

“The company is boosted by new licensing income as it taps into the power of its brands, of which Warhammer is the most popular.

“In retail knowing your customer is key and this is an area in which Games Workshop excels. It is constantly looking to engage with its audience through a variety of different mediums.

“This underpins robust cash flow and resilient earnings and for as long as this hobby remains popular the company looks well positioned to benefit.”

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


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.