Investors braced for higher CGT on shares, TSMC beats expectations, Nestlé cuts growth outlook, Entain lifts full-year forecast, Rentokil rebounds and N Brown receives takeover bid

“There was enough enthusiasm towards shares in industrials, energy producers and financials to stop the FTSE 100 from going into reverse amid the latest disappointment from China and a slump in profit from packaging group Mondi,” says Russ Mould, Investment Director at AJ Bell.

“Investors weren’t impressed by China’s plans to improve its housing market, including a pledge to help builders access funding to finish projects and avoid the country being awash with half-built homes and office blocks. Beijing initially gave the impression it would do whatever it takes to accelerate economic growth in China but market doubts are creeping in. Investors want evidence that its stimulus measures are working and that could be some way off.

“TSMC’s bullish outlook helped to calm nerves caused by ASML’s troublesome update earlier this week which sent shockwaves across the semiconductor industry. TSMC once again knocked it out of the park with better-than-expected profit thanks to AI-related demand staying red hot.

“Traders see a 97.7% chance of the European Central Bank cutting rates by a quarter percentage point today, making it the third cut this year as its attention moves from curbing inflation to driving the economy. Economic data from the region has been weak of late, meaning the central bank needs to lower the cost of borrowing to encourage more businesses and consumers to spend. A rate cut today might not be an isolated event as it could take a lot more cuts to regain positive momentum in the economy.”

Capital Gains Tax (CGT) on shares

“Investors face the prospect of paying a higher rate of capital gains tax when selling shares, according to reports. There is speculation that the government will announce the change at the Budget on 30 October, alongside other measures to boost public finances.

“In theory, heightened speculation about CGT rates could accelerate share sales among wealthier individuals and cause some volatility in the run-up to the Budget.

“If the rate change does happen, the most important thing for markets will be whether it comes into immediate effect on 30 October or the start of the new tax year. If investors have time to plan, we could see a steady trickle of portfolios being reshaped up until 5 April 2025 when the tax year ends, and that might weigh on markets over the next five or so months if there is a constant stream of selling. That could cause frustration among investors but also present buying opportunities if certain stocks have temporarily been depressed.

“The flipside of a CGT rate change is that it should encourage more people to maximise their ISA allowance so they shelter their capital gains from the taxman. We might also see greater interest in venture capital trusts where CGT can be avoided by meeting certain conditions.”

Nestlé

“Swiss consumer goods outfit Nestlé may have disappointed on growth but looks to have contained damage to the share price with proposals to revamp its leadership team and make significant structural changes. Investors can see the business is being proactive in the face of a difficult market backdrop.

“The cut to guidance may not have come as a huge shock given this is the first set of quarterly numbers under new CEO Laurent Freixe. It’s not uncommon for an incoming boss to take a kitchen sink to forecasts in an attempt to rebase expectations and set themselves up for a successful tenure. Freixe has a reasonable amount of leeway given his immediate predecessor, Mark Schneider, left under something of a cloud.

“Freixe needs to demonstrate he can find the right balance between protecting margins and growing sales. He also needs to show he can revive the company’s product portfolio, which was seen in some quarters as having become a bit tired under Schneider.”

Entain

“The recently appointed boss of Ladbrokes-owner Entain,, Gavin Isaacs, is off to a decent start as a robust third-quarter performance prompts an increase in full-year guidance.

“Given he’s only been in the chair since the end of the period in question it’s hard to give him too much credit but it’s always better to start out on a strong footing. He can now look to make changes at the business from a position of relative strength.

“His first big challenge could be responding to the upcoming Budget which, reports suggest, could include a big increase in taxes levied on the UK gambling industry.

“This could prompt the company to put even more of its focus into its BetMGM US joint venture with MGM resorts,, which saw better-than-anticipated growth in the quarter. The company is also seeing a strong contribution from its digital business and its Brazilian operation is growing rapidly.”

Rentokil

“While today’s material bounce in the share price for pest control firm Rentokil will be sweet relief for shareholders who have endured a tough period, the move is worth putting in context.

“The shares had been weak heading into the third-quarter update so they are now only modestly higher over the course of the last week and are still down more than 20% since September’s profit warning.

“Investors will have been reassured by the fact full-year targets remain unchanged and by the action taken to boost organic growth in North America and bring costs back under control. The company has also revamped its senior leadership team across the Atlantic.

“These are baby steps in the right direction but, with a representative from Nelson Peltz’s Trian vehicle on the board, after the activist snapped up a stake in the company, pressure on its management is likely to remain acute. Chief executive Andy Ransom needs to deliver after more than a decade in situ.”

N Brown

“N Brown looks set to join the ranks of UK stocks being taken private after receiving a takeover bid from a group controlled by Joshua Alliance, a non-executive director of the clothing retailer.

“N Brown has had a difficult time on the stock market over the past 10 years, losing a significant amount of value. It has struggled with fierce competition, tired brands, legal issues, over-estimating the opportunity for plus-sized fashion and for a while seemed to make more money from interest on customer credit than it did from selling clothes.

“Many investors gave up on the stock a long time ago so it’s a surprise N Brown has lasted this long as a listed entity.”

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