Investors focus on rate cuts, Legal & General’s Cala sale disappoints, bid talk lifts Advanced Medical Solutions, Games Workshop’s bare bones approach, AI IPO for UK and PZ Cussons’ woes

“While the Federal Reserve will almost certainly cut US interest rates today, it seems the chances of the Bank of England following suit with UK rates tomorrow have weakened after the publication of new inflation data,” says Russ Mould, investment director at AJ Bell.

“Services inflation arguably remains too high to warrant another cut from the Bank of England and traders now see a 73.9% probability of no cut at tomorrow’s meeting. The more domestic-focused FTSE 250 index slipped 0.25% on the news, with notable weakness in technology-related stocks as they lose out if rates remain higher for longer.

“Traders have priced in a 61% chance of the Fed cutting US rates by half a percentage point today. That feels like a step too far as the Fed might want to start the rate cut journey slow and steady, rather than going in headfirst with a big cut as that might send negative signals to the market that it is really worried about the state of the economy.”

Legal & General

“Legal & General was among the top fallers on the FTSE 100 after announcing the sale of its housebuilding business, Cala. Investors might be disappointed that it isn’t getting the full £1.16 billion cash up front. Just over half the money will be paid over a five-year period.

“Legal & General’s shares have been weak since its strategy update in June. Therefore, it’s not a surprise to see the company imply it might use some of the sale proceeds to fund share buybacks as it needs to deliver some more positive news to win back the market’s favour.”

Advanced Medical Solutions

“A new day, a new takeover rumour. The UK stock market has been a hive of activity for mergers and acquisitions. One by one companies are getting picked off by rivals or cash-rich private equity firms.

“The latest name in the frame is Advanced Medical Solutions whose shares jumped after speculation that Inflexion and other private equity groups have been sniffing around the business. Advanced Medical Solutions has remained quiet about the speculation so far.

“Its latest half-year results suggest a steady-as-she-goes performance with adjusted pre-tax profit up 8% to £14.8 million and margins remaining constant at 21.8%. Shareholders should be happy with that progress as well as a 10% hike in the dividend and a rally in the share price for much of 2024. The big question now is how much a suitor would be prepared to offer above the market value of the business.

“While Advanced Medical Solutions’ shares have been quite volatile over the past six years, it previously enjoyed a monumental rally dating back to 2005. Anyone who has held the stock for a long time should have made some serious gains, so they might be unwilling to let it go without a chunky bid premium.”

Games Workshop

“There is no beating around the bush with Games Workshop’s trading update. The bare to the bone announcement contains a mere 23 words.

“While some investors might welcome the directness of the statement, saying trading is in line with expectations, you do have to wonder why it doesn’t feel compelled to shed some light on individual parts of the business.

“Shareholders own the company and they have a right to know what’s going well, what isn’t, and what to expect going forward. There is certainly an expectation for companies in the prestigious FTSE 250 index to be transparent.

“Games Workshop might argue that three months is too short a period to warrant in-depth analysis or that running the business is more important that telling shareholders what’s going on in a quarterly update.

“It does suggest that whoever is running the investor relations department must have the easiest job in the world.”

GenIP

“Get ready for the onslaught of companies joining the stock market hoping to capitalise on investor interest in anything AI-related. GenIP is first out of the gates, announcing plans to join AIM on 2 October via a spin-off from tech incubator Tekcapital.

“It might be deploying generative AI to help other companies but this is a tiny business, expected to be worth only £6.5 million at IPO. The mere mention of AI might be enough to attract an army of small investors but like any company, it will have to show progress with revenue and profit to be taken seriously over the longer term.

“If anything, it should have floated a year ago when all things AI-related were in vogue. Now, investors are starting to focus more on the commercials of operating in this area and demanding to see positive returns on the money spent. That means GenIP will have to work harder in its sales pitch to convince potential clients that investment in its services is worth it.”

PZ Cussons

“Consumer goods firm PZ Cussons continues to be dogged by currency issues in Nigeria, bringing fresh urgency to the company’s plans to exit its African division.

“The current situation of having its results consistently marred by the devaluation of the naira feels unsustainable with the shares trading near 12-month lows. Shareholders also have to deal with the added sting of a big drop in the dividend, which won’t do anything for their patience.

“The scale of the impact of foreign exchange headwinds is illustrated by the fact the company eked out like-for-like revenue growth at constant currency compared with a headline 20% drop. Though notably this was driven by increased pricing as volumes declined.

“There were some signs of progress in the background, with the company reducing its debt pile, and it did see volume growth in the fourth quarter. However, partly due to accounting changes related to preparing the African unit for sale, the company faces even greater sensitivity to the naira in the current financial year.

“Having been at the helm since 2020, Jonathan Myers will be under pressure to deliver meaningful change and soon, with the divestment of the St Tropez tanning brand in progress.”

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