Tate & Lyle break-up in focus and Pearson gets digital learning boost

“A strong pound set the tone for an important week on the UK stock market as the banks start reporting their first quarter results. NatWest and Barclays will be in focus later in the week, with investors keen to hear about future dividends,” says Russ Mould, investment director at AJ Bell.

“The pound advanced 0.4% against both the US dollar at $1.3922 and the euro at €1.1515. The flipside of a strong UK currency is that it provides a headwind for the FTSE 100 and its army of overseas earners.

“Miners did their best to lift the index, but there was too much opposition from oil stocks, consumer non-cyclicals and financials which were in negative territory. The FTSE traded flat at 6,942.

“A near-1% decline in the Brent Crude oil price to $65.48 would suggest the market remains slightly nervous about the reopening trade, realising that it is not necessarily going to be a smooth bounce back.

BP reports first quarter results on Tuesday (27 April) and investors will want to get its view on the direction of the oil price and an update on its planned strategic shift and preparations for a net zero carbon future

“US tech firms will also be front of mind for investors this week, with updates from Tesla, Microsoft, Facebook, Google-parent Alphabet, Apple and Amazon. There are high expectations for these companies and any disappointment could hurt their share prices hard.”

Tate & Lyle

“It is becoming increasingly fashionable to break up large businesses, particularly those with conglomerate structures.

“Private equity companies are sitting on large amounts of cash and they are becoming more creative with deploying those funds to make future returns. Rather than making outright acquisitions, buying parts of businesses can be a good move as it can unlock hidden value.

“These are quite a few companies like Tate & Lyle which have fingers in many pies. While they might be making good money, splitting a business into different parts each with separate management can see a tighter focus and ultimately even stronger gains.

“Tate & Lyle’s potential move to sell a controlling stake in its artificial sweeteners and industrial starches arm could mean it gets a cash injection that can be used to pay down debt and reinvest in the business to make it more competitive, as well as the ability to focus more attention on its food and beverages arm.

“Keeping a minority stake in the sweeteners arm would also mean it benefits from any upside and provides an option to sell that holding at a future date, potentially for an even greater price than if it had sold out completely in one go.”

Pearson

“Like many publishing businesses in the 21st century, Pearson has been on a journey from print to digital however its journey has been less smooth than some with plenty of speed bumps along the way.

“Pearson’s update suggests it is hitting some open road for a change, with solid sales growth led by its online learning division and a fairly bullish outlook for the remainder of 2021.

“A key problem for Pearson over recent years is that it used to make a lot of money selling big, thick, expensive academic textbooks – a highly lucrative activity – and this has dried up as the world of academia follows other sectors into an internet-led world.

“Pearson had made progress in transitioning to this new reality, and this was demonstrated by the relative outperformance of its online learning arm through the pandemic – when other areas like assessment work, affected by the cancellation of exams, and English tuition, took a hit.

“This should see Pearson benefit from a reopening of the global economy as the impact of covid eases. The reorganisation of the group under recently appointed chief executive Andy Bird has yet to be fully tested.

“It will be fairer to judge Disney alumni Bird at the end of 2021 when Pearson’s trading may have returned to something more like normality.”

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.