Aviva raises bid for Direct Line, bitcoin below $100,000, Frasers signals bid for XXL, Berkeley outlines 10-year plan, Lululemon beats expectations, Quiz may need cash call and SDX Energy to delist

“After the drama of bitcoin going through $100,000, the French government going through a crisis, and yet more takeover twists and turns, investors have had more than enough on their plate this week to go chasing opportunities on Friday. Markets look set to end the week on a dull note, with heads spinning faster than the morning after the Christmas party,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“Bitcoin is behaving like a child suffering the after-effects of a sugar rush. After yesterday’s surge, the sugar crash took effect and took the crypto back below $100,000. A few more sweets have now been consumed and the price is going back up. All in all, the recent price movements aren’t out of the ordinary for bitcoin and no-one knows where it will go next. The price is driven by sentiment and that can easily turn on a dime.”

Direct Line / Aviva

“Aviva had no choice but to dig deeper if it wanted to secure Direct Line. Low and behold, the offer has been raised to a much more realistic level to get the deal done.

“Offering 275p per share amounts to a generous 73.3% bid premium, implying that it is paying a fair price based on current and future prospects. A cash bid at this price would have been the sweetest of deals, but as it stands an all-share deal is the next best thing.

“The next test is to see if shareholders push for more. Judging by recent City chatter, 275p should be enough to keep everyone happy and Aviva might be able to wrap this up fairly quickly.

“Aviva has performed every step of the takeover dance flawlessly. It’s spotted a rival going through a weak phase and thrown its hat into the ring as an interested buyer with a low-ball price to test the water. It will have almost certainly known the first bid would have been rejected and it’s now come back with a higher and fairer offer, and Direct Line’s board has indicated it’s good enough.

“Had it simply gone straight in at 275p, there was a chance that Direct Line and its shareholders would have pushed for more, given that second time’s the charm when it comes to M&A.”

Frasers

“Frasers has deal-making in its DNA and has the itch to get another deal in the bag before Christmas. Having failed to buy Mulberry and been pushed back with efforts to overthrow the regime at Boohoo, will it have more luck with sporting goods group XXL?

“The approach is similar to Mulberry in that Frasers has fiercely criticised XXL’s fundraising efforts, this time implying the Norwegian retailer is making a bad decision with a reworked rights issue. A proposed 25% bid premium isn’t generous yet XXL is on its knees and Frasers is factoring in high risks associated with the company.

“XXL has the opposite problem to many UK retailers – rather than sitting on mountains of unsold inventory, it can’t get enough stock. The issue appears to lie in a shortage of money to pay suppliers and Frasers is offering to step in and provide stock and not take payment until it’s sold.

“This is classic Frasers behaviour. Use its position as a major shareholder to try and control a bad situation and make it good. Frasers is typically happy to go the extra mile with a company in trouble if it ultimately means gaining control on the cheap. Not many other retailers would be so brave, but that risk-taking is partially why Frasers is so successful as its gambles have often paid off.”

Berkeley

“Housebuilder Berkeley is known as being one of the best-run names in the industry and its first-half results only reaffirm that status.

“There is transparency on capital returns and medium-term guidance and while earnings are a touch lower, the balance sheet remains strong and sales resilient. Its 10-year strategy lays the foundations for how it will use its capital – across land investment, build-to-rent and shareholder returns.

“Under its founder – the late Tony Pidgley – Berkeley acquired a reputation for calling the housing market correctly so it will be interesting on a wider level to see how the company balances its latest priorities. There is a level of flexibility which will allow Berkeley to shift priorities as market conditions dictate.

“While the market seems to have been underwhelmed by Keir Starmer reaffirming the pledge to build 1.5 million new homes by the end of this parliament, Berkeley says the rhetoric alone from the new government has galvanised the planning system.

“It remains a challenging environment for the industry as interest rates have stayed stubbornly higher than expected and build cost inflation has continued to ramp up. Berkeley’s approach suggests it might be able to deal with whatever is thrown at it.”

Lululemon

“Yoga gear seller Lululemon was a pandemic winner as the athleisure trend got a kicker from the fact people were working from home and the sartorial lines between socialising, exercising and working became blurred.

“The Canadian business became a stock market darling, consistently beating expectations. That changed at the start of this year as customers couldn’t get the products they wanted in its largest market, North America.

“Lululemon’s product range spans everything from yoga pants and mats to leggings, shoes, hoodies, tanks tops and belt bags, and while historically the core demographic has been women, its men’s line is growing. But having the right sizes in stock has been an issue.

“The company is now back to raising guidance, although nagging worries about North American demand won’t have been helped by a dip in sales growth for this region.

“Encouragingly, the start to the crucial holiday trading season has made a decent start as the company has revamped its offering.

“Margins also expanded as the company continues to push its ambitious ‘Power of Three x2’ strategy and it is seeing opportunities in Asia where there is increasing demand for high-end yoga apparel.”

Quiz

“An enormous amount is riding on clothing retailer Quiz having a decent Christmas. The company may need a cash injection if things don’t pick up.

“Investors are likely to find out by mid-January but even if the company is able to limp through in the short term, the longer-term prospects for the business look shaky at best.”

SDX Energy

“SDX Energy is joining the line of companies leaving the UK stock market. While that means the pot continues to shrink, SDX is a classic example of a company which is just too small to warrant being a listed entity. Its share price has fallen by 96% over the past five years and the business is now worth a mere £1.5 million.

“Its proposed delisting isn’t a blot on the London Stock Exchange’s record – instead, it’s simply a business whose fortunes didn’t go in the right way. That happens from time to time. It’s a natural evolution to see the tiny crumbs at the bottom of the market swept away.”

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