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“All eyes are on the US Federal Reserve which is expected to cut interest rates later today. While investors often welcome rate cuts, history shows that the Fed reduces rates in response to an economic slowdown. And slowdowns can hit corporate earnings and profit downgrades tend to stop stock markets in their tracks.
“Ahead of today’s Fed decision, the dollar advanced 0.23% against the pound and gave a boost to the large number of overseas earners on the FTSE 100. The key risers included miners Evraz and Antofagasta as well as fashion specialist Burberry,” says Russ Mould, Investment Director at AJ Bell.
Cobham
“Some shareholders in defence outfit Cobham may be feeling peeved as the Government opens a national security probe into its £4bn takeover by a US private equity group after the founding family behind the firm raised concerns.
“Advent International’s 165p per share cash offer for the air-to-air refuelling and military communications specialist had found strong support at a meeting to approve the deal earlier this week.
“While there may have been an element of opportunism to Advent’s approach, it is certainly not the first overseas firm to take advantage of sterling weakness to acquire UK assets at a discount. Cobham’s historic patchy track record likely underpinned the attractions of a cash exit.
“The last few years have been tough going for the business with a series of profit warnings, mixed performances from its main divisions despite an increase in defence spending globally, and pressure on its cash flow and balance sheet. A tax dispute with HMRC didn’t help sentiment towards the stock either.
“Now investors are in limbo until the Competition and Markets Authority reports on the national security implications at the end of October. Although a muted share price reaction – with the shares trading not too far from Advent’s offer level – suggests, rightly or wrongly, that the market expects the deal to go through.”
Kingfisher
“Veronique Laury is not going to be remembered in a positive light for her time as Kingfisher’s leader. Her last set of results as chief executive follow a similar trend to earlier ones – sales are down, profit is down and there is no growth in the dividend.
“Incoming boss Thierry Garnier may be a fresh face but he is still inheriting the same challenges that have depressed Kingfisher for so long.
“The DIY sector is suffering from a shift in consumer attitudes whereby more people would rather get tradesmen to do work in their house rather than don a pair of overalls themselves. Compounding this situation is Kingfisher’s inability to run its business smoothly.
“Kingfisher is three and a half years into its turnaround programme and the results are patchy to say the least. It talks about having better buying power and making IT system upgrades but overall ‘transformation activity’ is still impacting the operational performance.
“It will be interesting to see how long the market gives Garnier to make a difference. Investors must be losing patience, particularly as the share price last month hit a 10-year low. They will want immediate action otherwise this looks like a classic candidate for an activist investor to come in and demand changes such as the sale of its struggling French operations.”
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