NMC Health soars on stake bid chatter and CRH constructs strong first half

Thursday, August 22, 2019 - 10:09

“Financial and consumer goods companies including Prudential weighed on the FTSE 100 on Thursday, sending the index down 0.5% to 7,171. Among these stocks were Reckitt Benckiser and Schroders which fell as they traded without the rights to their latest dividend. The same applied to Imperial Brands and London Stock Exchanges," says Russ Mould, Investment Director at AJ Bell.

“There was little movement on markets in mainland Europe but much of Asia saw stocks pull back including a 0.9% decline in Hong Kong’s Hang Seng index. The worst performer in Hong Kong was nappies maker Hengan International which dropped nearly 5% on disappointing results.”

NMC Health

“Shares in Middle East hospital operator NMC Health have been falling over the past year as investors became increasingly concerned about the business growing too fast and that acquisitions were masking poor organic growth. Analysts also raised issues around corporate governance, opaque accounting and supply chain finance.

“The stock, perhaps unsurprisingly, became a target for short sellers who would profit from any further decline in the share price. The percentage of stock being used for short selling had increased from 0.5% in November 2018 to 5.4% on the eve of the latest financial results.

“Half-year results show that earnings continue to grow, it is getting better at managing working capital and debt pressures are easing.

“But perhaps the real reason behind today’s share price spike is chatter that two groups including one backed by China’s Fosun, are fighting to buy a 40% stake in NMC, potentially at a premium to last night’s market price.

“Weak share prices across the UK stock market are providing plenty of opportunities for big investors to swoop on companies with depressed valuations.

“We’ve seen Greene King and Cobham receive bids from foreign companies in recent months, and over the past few years since the Brexit referendum other UK names have been snapped up by overseas bidders including Berendsen and ARM.

“There will no doubt be more deals if sterling remains very weak as Brexit has effectively made it hunting season for foreign companies who see value in depressed UK assets.”

CRH

“Despite all the talk of a global slowdown, Irish building materials firm CRH has just chalked up a record first half result.

“How has it achieved this feat when you would expect the construction sector to be fairly depressed? Indeed, there are clear signs of slowing growth among the company’s peer group in the US as well as pressure on pricing.

“Well CRH, which provides everything from foundations to frames, roofing and interiors to the construction industry, aims to be diversified across different products, geographies and end-uses to mitigate fluctuating demand at different points of the business cycle.

“There is also a commitment to continually looking at how the different bits of the group can be renovated.

“And, for now, this approach appears to be paying off. The company’s strong cash generation is helping to underpin an extension of its share buyback programme.

“There are some cracks in the façade though. The numbers are flattered by positive currency movements and are also boosted by acquisitions.

“Selectively buying up businesses is unashamedly part of the strategy, but organic growth is probably a better test of the firm’s foundations. Take acquisitions out of the equation and growth look solid rather than spectacular.”

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.