Markets pause for breath, Rightmove rejects third bid, activist grabs seat on Rentokil board, DFS still struggling, OECD offers glimmer of hope on UK economy

“Banks, utilities and tobacco stocks were at the top of investors’ lists for trimming positions, causing the FTSE 100 to lose momentum. The index was flat at 8,280 despite the best efforts of mining stocks still enjoying a rally from China’s latest stimulus measures,” says Russ Mould, investment director at AJ Bell.

“Futures prices imply a lacklustre session from Wall Street later on, with the main US indices reversing yesterday’s gains.

“With a lack of major economic news on the schedule for Wednesday and only a few big-name corporates reporting results, investors might be taking stock of events and working out their strategy for the months ahead. There continues to be a lot of noise helping to pull asset prices one way or another, but the key is staying focused.”

Rightmove

“While there was a shift in the tone of Rightmove’s announcement earlier this week in that it was ‘carefully considering’ REA’s latest proposal, it didn’t take long for the property portal to go back to its dismissive ways.

“REA looks to be running out of patience with Rightmove after it rejected a third takeover proposal, banging the drum even louder that it’s bad form not to properly engage in a conversation. This sets the tone for REA taking a hostile approach, bypassing the board and negotiating directly with shareholders.

“Rightmove’s biggest investors are asset management firms and they will all have a price at which they’d be happy to let their shares go. Names like Kayne Anderson Rudnick, BlackRock and Lindsell Train won’t be emotionally attached to a business like Rightmove in the way a founder or company employee might be. They’re holding Rightmove stock to make money and it’s clear that REA continues to want the business.

“So far, the price is not right. These big shareholders know they are holding the best cards and they want a Brucie Bonus. REA really needs to think about its best and final offer and make that a formal bid, otherwise it will have to walk away.”

Rentokil

“Pest control outfit Rentokil was not in a strong position to refuse any requests from activist investor Nelson Peltz, so news that a representative from his Trian Fund Management vehicle is joining the board shouldn’t come as a big surprise.

“After serving up a doozy of a profit warning earlier this month, Rentokil’s board is hardly in a position to suggest it doesn’t need help or fresh ideas, and it will be interesting to see where Peltz looks to exert pressure.

“Weaker than expected revenue at Rentokil has been compounded by internal problems around the integration of acquired branches and poor cost control as the company strained to hit sales targets. This state of affairs does not reflect well on the company’s discipline.

“Already seen as an expensive deal when first unveiled, the acquisition of Terminix in 2022 is proving increasingly costly over time as Rentokil has struggled to bring the business fully into the fold.

“All in all, having joined the shareholder register in June, Peltz has a mandate to push for meaningful change at Rentokil. That might include shifting the primary listing to the US and potentially selling off underperforming parts of the business. Management changes also cannot be ruled out.”

DFS

“There’s no sign in DFS’ latest results that consumers are feeling better about spending on big ticket items like sofas.

“When a company is describing the market as ‘extremely challenging’ and talking about ‘record low’ demand, you know it is doing its best to manage expectations.

“What’s making DFS’ life even more difficult is being walloped by higher freight costs thanks to the disruption to Red Sea shipping routes.

“The company has a strong market position but its debt pile is growing, and while it is currently well within the scope of its lending facility, an improvement in the economic backdrop is probably needed to avoid this becoming a more nagging worry for investors.

“DFS expects a gradual recovery during the course of the current financial year. However, amid gloomy messaging from the new Labour Government, consumer confidence has taken a dive recently, which suggests any recovery for the sofa seller could be uneven and unpredictable.

“For now, it seems the company has protected margins at the expense of sales and that may prove to be a sensible decision, as long as the rebound in the housing market and increase in household disposable income continue.”

OECD / UK economy

“Rachel Reeves needs all the good news she can get on the economic state of the UK.

“The new Government has faced accusations that its messaging has been overly gloomy since coming into office two months ago, with indications that October’s Budget is going to need to be painful if it is to repair public finances.

“Fortunately, there is a small ray of sunshine through the dark clouds.

“The OECD says the UK is now expected to have better economic growth than Japan, Italy and Germany in 2024, putting it on a par with Canada and France. That’s a big improvement on the UK’s ranking among G7 countries, having been at the bottom of the list in May.

“However, the prediction of 1.1% growth for 2024 is hardly indicative of a country powering ahead.

“Labour’s plethora of speeches this week imply it could be a two-stage process to getting the economy moving. First, it needs to lay the foundations for growth by reducing what it says is the £22 billion black hole it inherited. Only then can we expect to see increased investment that should hopefully accelerate the economy.

“Inflation remains above the Bank of England’s target and the OECD’s prediction of 2.7% inflation this year means the UK is still the G7 country with the fastest-rising prices. That’s an unwanted accolade.”

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