Daily market update: BP, Assura / Alliance Pharma, WH Smith

“The FTSE 100 slipped lower in early trading on Monday as fears about deflation in China and a recession in the US took air out of the market’s balloon,” says AJ Bell Investment Director Russ Mould.

“Resource stocks were lower as figures showed the inflation rate went negative in China in February. China’s domestic demand was weak, which will provoke concern given the threat tariffs could pose to the country’s exports.

“President Donald Trump’s failure to dismiss a question about the country potentially heading towards recession as he talked about a ‘period of transition’ for the economy saw yields on US government debt slide as investors begin to assume a downturn is coming.

“This situation, plus the overall uncertainty about the new administration’s trade policy and recent increases in oil output from producers’ cartel OPEC+, conspired to put pressure on crude prices.

“In Japan, government bond yields headed higher as traders looked for further rate hikes from the Bank of Japan.”

BP

“The battle lines are being drawn at BP ahead of the company’s annual general meeting next month. Sources around Elliott had already signalled the activist investor’s displeasure with BP’s strategic reset. Reports now suggest Elliott wants the oil major to sell its petrol station operation and go further on debt reduction.

“BP chief executive Murray Auchincloss has said the new direction for the business is resonating with other shareholders, with concern only shown about the pace rather than the direction of change.

“While the company has abandoned plans to reduce oil and gas production and investments in green projects, its targeted reduction in borrowings would still leave it more indebted than many of its peers. The share price reaction to the strategy reset suggests the market was underwhelmed.

“Elliott is likely to push for the replacement of chair Helge Lund – who looks as green-fingered as the keenest gardener in Elliott’s eyes – having signed off on the ill-fated energy transition plan under Auchincloss’ predecessor Bernard Looney.

“BP will be sitting uneasily in case it gets an aggressive letter from Elliott in the post ahead of the AGM in mid-April. The meeting itself will be a test of the current management’s ability to resist outside pressure and pursue its own course.”

Assura / Alliance Pharma

“Once again, we have bid situations where the suitor has had to dig deeper into their pockets to try and win over the target’s shareholders. Increased bids have become a regular occurrence over the past few years as bidders first try their luck with a cheeky offer and then play fair with a higher price a few days, weeks or months later.

“Doctors’ surgeries property owner Assura has found itself the subject of a bidding war. Private equity group KKR had already submitted four separate proposals to buy the group, including a 48p per share deal on 13 February. That’s now been bumped even higher to 48.56p and the right to keep a planned dividend in April, implying that KKR is prepared to do whatever it takes to secure the deal.

“A second party throwing their hat into the ring makes things interesting. Primary Health Properties has also proposed a merger with Assura, but the target has rejected the proposal on the grounds that KKR’s cash offer is more attractive than an all-share deal. KKR’s bid is also higher than the implied 43p per share PHP merger value as of 13 February.

“The fact Assura’s share price at 46.48p is trading below KKR’s latest proposal implies the market doesn’t believe Primary Health Properties is going to come back with a significantly better offer. It also suggests scepticism that the new KKR proposal is a done deal. The 31.9% bid premium is significantly below the 47% average for UK takeovers in 2024, meaning Assura’s shareholders might feel they aren’t being compensated adequately. After all, they would be giving up an investment that could generate much greater returns over time.

“Meanwhile, DBAY has increased its bid for Alliance Pharma by a small amount to 64.75p and said that’s as high as it will go. The increased offer equates to a 46% bid premium, almost in line with 2024’s UK average.”

WH Smith

“Reports suggest there are only two bidders left for WH Smith’s UK high street stores, which is a bad sign. A lack of competition could mean that WH Smith doesn’t get the price it wants. Worst case scenario is that it has to postpone the sale until market conditions improve.

“Selling retail assets was always going to be a challenge, particularly with storm clouds on the horizon as employment-related costs go up from April.

“Any buyer for WH Smith’s UK high street operations is unlikely to want the full store estate, so a lot of work will be needed to decide which bits to keep and how best to exit the unwanted locations. That’s quite an undertaking and is much more challenging than simply buying a business and keeping everything ticking over as per normal.”

Clarkson

“Clarkson looks to be a victim of Donald Trump’s trade war before it has got fully underway. Uncertainty around tariffs have weighed on freight rates and asset values, creating headwinds for the shipping broker.

“It’s also bad news for so-called star fund manager Nick Train who has suffered multiple years of underperformance with the Finsbury Growth & Income investment vehicle. Clarkson is one of the recent additions to the portfolio and today’s 15% share price slump doesn’t put the investment off to a good start.

“Nick Train recently said timing the initiation of new holdings is always tricky but share price weakness in 2024 was a trigger for buying Clarkson. The shipping company’s latest warning will be unwelcome for Train but he’s no stranger to sitting out difficult periods for investments.”

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