Daily market update: BP, Deliveroo, Ford, Associated British Foods’

“The FTSE 100 started the week with a bang, yet those early gains quickly faded away,” says Russ Mould, investment director at AJ Bell.

“A mixture of takeover talk and investors reaching for defensive stocks initially gave the UK blue-chip index a lift.

“British American Tobacco was the biggest mover on the FTSE 100 in terms of index points, with investors potentially seeking solace in a business whose products should remain in demand no matter what happens to the economy.

“It’s a big week for central bank interest rate decisions. The Fed updates its view on US rates tomorrow and isn’t expected to make any changes. However, the key focus will be on forward-looking commentary and whether the Fed is getting worried about Trump’s tariffs.

“It’s too early to judge the true impact of tariffs on the economy and labour markets but give it a few months and the situation will become clearer. Markets expect a 30% chance of US rate cuts in June, a 76% probability of cuts in July and a 96% chance of cuts in September, so the direction of travel looks clear.

“The Bank of England makes its policy decision on Thursday and a rate cut is widely expected, which would help to ease financial pressures on consumers and businesses, and this would potentially encourage more spending and boost the economy.”

Mergers and takeover – BP/Shell, Deliveroo/Doordash

“European shares remain cheap relative to the US market despite greater investor interest this year. That means markets like the UK are still ripe for M&A given widespread valuation opportunities. If a foreign or domestic company was in the mood to do deals, there remain plenty of UK-listed stocks ripe for the taking.

“It is against that backdrop that we continue to see a flurry of mergers and acquisitions activity and speculation among UK stocks.

“Chatter that Shell is interested in buying BP has been bubbling away for a while but talk seems to be heating up. BP’s cheaper valuation compared to many peers makes it vulnerable to a takeover from someone in the oil and gas industry, not necessarily just Shell.

“A weaker economic backdrop thanks to Trump’s tariffs has clouded the outlook for oil and gas prices and that makes it even more likely we’ll see more industry consolidation. When times get hard, companies often seek economies of scale and cost synergies through mergers and takeovers.

“Anyone buying BP – whether that is Shell or another peer – would need to prepare themselves for a potentially complex deal. On paper, you would think parking together two companies in the same sector would be easy; in reality, this could take a long time to execute and integrate. Shell has already been through this hassle once before, when it acquired BG for £47 billion in 2015. That acquisition has turned out to be a good one, but most ‘transformational’ deals destroy, not create value.

“Meanwhile, DoorDash has firmed up its intention to buy Deliveroo with a formal offer. The food delivery market has found it hard to grow at a rapid clip in recent years, leading to widespread consolidation. Arguably, there were too many companies chasing the same opportunity and that’s unsustainable. We’re now in the phase where only the strongest will survive and they’re the ones picking up smaller rivals who realise their future is best part of a bigger entity, not going it alone.”

Associated British Foods

“The merits of Associated British Foods’ diversified conglomerate model are under the spotlight after the company’s uneven first-half results last week. In this context, confirmation it is in talks with the owner of Hovis about some kind of combination with its own Kingsmill-producing Allied Bakeries arm is likely to be well received.

“It was the sugar business which really soured things in the first half of the company’s financial year but Allied Bakeries has been struggling for a while and is subject to a strategic review. Combining Allied with Hovis via a demerger could be an attractive solution to years of declining demand for sliced bread as people shift to low-carb diets and look to buy artisan loaves instead. However, the thick market share that any merged entity would enjoy would attract scrutiny from competition regulators.

“If some sort of demerger of Allied Bakeries does take place it may raise questions about a wider break-up of the group – something the controlling Weston family has long resisted. They can point to the pandemic as a period when its non-retail businesses came to the rescue when Primark stores were shuttered.”

Facilities by ADF

“Trump considering 100% tariffs on films not made in the US could be bad news for the UK film industry. The UK has tax incentives and a rich pool of talent that attracts Hollywood studios to make productions in this country.

“If American film studios focus more on the US, it could be terrible for the UK’s media industry and for one stock in particular.

“Facilities by ADF is a major player in the provision of costume and makeup trailers, tech vehicles and production offices.

“Its shares crashed by 18% on the tariff talk, which have come at the worst time for the group. It coincides with its full-year results which show the group moving from profit to loss, hurt by project delays as the industry recovers from writers and actors strikes.”

Ford

“Ford became the latest carmaker to withdraw guidance in the face of the Trump administration’s tariff policy. A highly meaningful tariff-related hit was flagged after the company reported a big decline in first-quarter income.

“The industry has had a nightmare decade so far. First, the pandemic affected demand and upset supply chains, then post-covid inflationary pressures and increased borrowing costs put further pressure on people’s ability to buy new cars. At the same time, the industry is contending with the uncertain pace of transition to electric vehicles.

“Now, the newly adopted American trade policy has thrown a further spanner in the works. Any level of tariffs would be bad news for the sector but what is also unhelpful is the lack of clarity about exactly where they will land amid apparent delays and reprieves. It’s likely Ford and its rivals are travelling to a hard-to-reach destination and their satnavs keep updating every 10 minutes.”

Palantir

“Investors clearly hoped for more from US tech outfit Palantir’s latest quarterly numbers and after a big run-up to the release of the earnings, the shares subsequently fell off a cliff in pre-market trading as earnings merely matched expectations. When valuations are lofty companies need to beat forecasts to sustain share price momentum.

“There is ongoing uncertainty about how the business might be impacted by changes in US defence spending and wider concern about Palantir’s opaque business model.

“The latter is something of an occupational hazard given Palantir’s highly sensitive work for the US government and intelligence communities.

“The company is seeing strong growth in its non-government commercial revenue as the rest of the corporate world looks to adapt to the challenges and opportunities thrown up by AI.

“It’s Artificial Intelligence Platform offers boot camps, where its engineers are paired with client employees to use AI to solve business problems, and they appear to be gaining traction.”

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