Daily market update: FTSE 100, BHP, InterContinental Hotels

“The FTSE 100 made a sluggish start on Tuesday as jobs data showed accelerating wage growth which helped to boost the pound,” says AJ Bell Investment Director Russ Mould.

“Strength in sterling is typically bad news for the UK’s flagship index because it hits the relative value of its constituents’ dominant overseas earnings.

“BT was the worst FTSE performer after the revelation that US investment bank Morgan Stanley had cut its stake in the business.

“Take-up of South West Water owner Pennon’s rights issue could have been worse at 92%, with the banks underwriting the issue now set to hoover up the rest. Pennon has to spend heavily on creaking infrastructure as part of the investment plan agreed with the regulator. It needs to deliver to help win over disgruntled politicians, shareholders and customers for whom the water utility space’s name is currently mud.”

BHP

“BHP has reminded the market why miners are not reliable dividend payers.

“The mining sector historically ploughed spare cash into acquisitions, but the narrative changed in 2013 when the commodities cycle went into a downturn.

“Miners leant on dividends to keep shareholders happy, effectively paying them to wait for the rebound in commodity prices. Unfortunately for these companies, investors got too accustomed to those juicy dividends, and the mining sector became a popular source of high yields. Fundamentally, that’s the last thing miners wanted to happen as the cyclical nature of their industry meant they would ultimately disappoint on dividends down the line.

“In recent years, commodity prices have been particularly volatile and miners have cut back dividend payments, much to shareholder disappoint. BHP has once again reduced its dividend after suffering from lower iron ore and coking coal prices.

“Strategically, BHP is focused on high quality assets with the aim of generating the strongest returns possible. That means large scale, low cost and long life.

“BHP has plenty of organic opportunities to pursue but its move on Anglo American last year means questions will continue to be asked about a return of large-scale M&A. BHP might have thrown cold water on the idea it is coming back again to try and buy Anglo, but that doesn’t mean it won’t consider offers for individual assets.

“What might throw a spanner in the works short-term is heightened geopolitical tensions, the potential for a trade war in many parts of the world and uncertainty around Chinese commodities demand. China’s economy could be rocked by Donald Trump taking an aggressive stance on trade and that could weigh on metal and energy prices. BHP comes across as cautious in its result outlook and that could cause it to temporarily put the brakes on any M&A activity.”

InterContinental Hotels

“Holiday Inn owner InterContinental Hotels’ full-year results didn’t garner a top rating from investors despite an increase in the dividend and the unveiling of a new share buyback.

“Currency headwinds, a continued weak showing from Chinese operations and a meaningful increase in net debt prompted profit taking after a strong run for the shares.

“There were some encouraging underlying signs for the business with revenue per available room – a key industry metric – showing signs of accelerating momentum across all geographies in the second half of the year and in the final three months of 2024.

“Even in China, where this figure is falling, there is evidence of that decline moderating. Overall, it appears the company’s asset-light model, with the majority of its hotels run on a franchise basis, is continuing to deliver strong cash flow and the ability to grow without employing lots of extra capital.

“The company also announced the acquisition of urban ‘micro hotel’ brand Ruby – with the company’s diversified portfolio of strong brands in different segments of the market helping it to thrive despite a difficult backdrop for the broader hospitality and leisure industry.”

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