Risk-on mood sees widespread gains on FTSE 100, Microsoft surprises with $60 billion buyback, Kingfisher soars on upgraded guidance and Essentra at risk of losing FTSE 250 place

“European equity indices pushed ahead on Tuesday, including a 0.75% increase in the FTSE 100 as investors were in a risk-on mood. Banks, commodity producers and consumer-facing companies helped lead the charge ahead of the all-important US interest rate decision tomorrow,” says Russ Mould, investment director at AJ Bell.

“Gains were seen across most of the UK market, with only five FTSE 100 stocks in negative territory including British American Tobacco.”

Microsoft

“The share buyback juggernaut has moved into the fast lane with Microsoft saying it will purchase up to $60 billion of stock on the market, a gigantic sum of money.

“While tech companies are increasingly paying more generous dividends to shareholders, their preferred method of deploying surplus cash is to buy back shares.

“Share buybacks reduce the amount of shares in issue and boost earnings per share. In turn, a higher level of earnings per share can boost the market value of a business.

“Fundamentally, investors love share buybacks. They particularly love them when they are least expected, which is certainly the case for Microsoft. One might have expected the tech giant to spend all its surplus cash on AI-related investments, but it is clearly balancing the needs of the business with keeping shareholders happy.”

Kingfisher

“Kingfisher’s headline results aren’t that special, with revenue and adjusted pre-tax profit down and no growth in the dividend. What’s driven the share price rally is upgraded guidance for free cash flow and accelerating the pace of share buybacks.

“The market is effectively judging Kingfisher as a turnaround story. Expectations have been very low as the business suffered the hangover of life after the pandemic, whereby a surge in DIY spending during the various lockdowns dwindled away and fewer people splashed the cash on doing up their home.

“For Kingfisher, it’s all about showing resilience, rather than rapid earnings progression. There are positive signs on that front.

“The new UK government is pro-housing and various initiatives should eventually create a tailwind for the property market, which is exactly what Kingfisher needs to accelerate sales growth. However, Kingfisher’s French arm is struggling and the outlook remains bleak, which creates an anchor to act as a drag on its group recovery efforts.”

Essentra

“Approximately £100 million has been wiped off the value of Essentra, amounting to a fifth of its market value, after the manufacturer warned of weak market conditions in Europe. This share price slump means Essentra is in grave danger of losing its place in the FTSE 250 at the next index reshuffle unless it can pull a rabbit out of the hat over the next three months and drive a share price recovery.

“Essentra is no stranger to profit warnings and last year flagged a slowdown in trade. Despite expressing confidence earlier this year that volumes would improve, the big recovery hasn’t lived up to expectations.”

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