Markets rebound from Evergrande sell-off, National Express in talks to buy Stagecoach, and Kingfisher’s tough act to follow

“Bargain hunters appeared to be out in force on Tuesday as the FTSE 100 bounced back from a torrid start to the week,” says AJ Bell Investment Director Russ Mould.

“The miners, scarred by heavy selling on Monday, eked out a recovery while British Airways owner International Consolidated Airlines continued the ascent which begin yesterday afternoon when the US lifted travel restrictions on fully vaccinated UK and EU visitors.

“The major catalyst for market volatility of late, fears about the fall-out from a potential collapse of Chinese property developer Evergrande, haven’t disappeared though.

“Evergrande is due to make a debt repayment on Thursday and this event could be the next major test of investors’ resolve.

“The challenge for the markets is trying to guess how Beijing might react, particularly after its notably strident approach in recent months when it comes to the technology industry. Will it be similarly strict with the property sector?

“Before Thursday there is also the small matter of the latest US Federal Reserve meeting and the question of whether recent events will lead chair Jay Powell and his colleagues to rethink their plans for tapering financial stimulus.”

National Express / Stagecoach

“It’s pitched as a merger, but it is clear which party will be in control. National Express is trying to buy Stagecoach, plain and simple. The benefits of parking the two businesses together include operating synergies, economies of scale and a bigger footprint for National Express in growth areas such as private coach hire and corporate transport.

“The starting gun on Stagecoach being a bona fide takeover target was fired in April when founders Sir Brian Souter and his sister Dame Ann Gloag sold just over 2% of the business. This was part of a plan to reduce the family ownership from 27.1% to 5% over the coming decade. In doing so, they have removed a major hurdle for any would-be suitor by declaring their intention to sell down the bulk of their holding.

“While the pair still have a significant stake, their willingness to start selling down should make it easier for National Express to convince them to accept its all-share offer.

“The competition authorities might have something to say about the two public transport operators coming together, but otherwise the deal looks fairly sensible.

“The fact that Stagecoach’s board have called it a ‘strategically compelling proposition’ would also suggest talks are friendly.

“A key factor to consider is whether someone else might fancy owning Stagecoach, such as an overseas transport operator. It is not an easy feat to build up a large position in the UK public transport market and Stagecoach now has 8,400 buses and coaches

“There may be some nervousness around using public transport at present due to the lingering pandemic, but long term it seems inevitable that buses will remain a vital part of the UK’s transport network.

“Stagecoach has a key position in various parts of the country including places like Manchester where companies continue to expand, thereby pushing up employment and with it demand for commuter services.”

Kingfisher

“Can B&Q-owner Kingfisher make the DIY habit stick for customers as we emerge from lockdown?

“Strong first half numbers offer some encouragement on this front but the second half of its financial year is when Kingfisher really has a tough act to follow.

“In the latter part of lockdown it was one of the few retailers able to operate which gave it an obvious advantage which no longer exists, with consumers now able to spend on things like going out and socialising.

“While Kingfisher is expecting a bit of a drop off, the decline is looking shallower than previously expected which is significant, particularly as even in the worst case scenario the performance would still be ahead of pre-Covid levels.

“And not only has it been getting more customers through the doors the amount people are buying is going up too. The company seems still to be benefiting from the home improvement drive as the work from home trend and being stuck indoors caused many people to have a rethink about their living space.

“The company is seeing growth in digital sales, but they remain a relatively small part of the business, suggesting more investment could be required to take advantage of this opportunity.”

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