Daily market update: GameStop, Inditex, UK takeovers, Ricardo, TSMC

“The FTSE 100 looks like it might attain the closing high it missed by a whisker yesterday as positive news on trade talks between the US and China boosted sentiment,” says AJ Bell Investment Director Russ Mould.

“Banks, housebuilders and miners did the heavy lifting for the index with the retail sector proving a drag on Wednesday morning after weak sales data yesterday.

“US and China have agreed a framework trade deal as they ironed out some difference over export controls on rare earths and technology.

“A US appeals court has allowed Trump’s broad-based tariffs to remain in place as it reviews a ruling that blocked the Liberation Day tariffs announced on 2 April.

“GameStop shares came under pressure in pre-market trading as the one-time ‘meme stock’ missed revenue forecasts. The company invests heavily in bitcoin but it seems investors still care about the core retail operations. The sales miss overshadowed better-than-expected earnings.”

Inditex

“Inditex is the eurozone’s equivalent of Next – a company that sets the gold standard for its sector. When it disappoints on trading, shockwaves are felt across the retail industry.

“Its second quarter sales growth rate has halved compared to the same period last year at 6%. Admittedly, that only covers the first five weeks of the quarter, but it’s enough to suggest that trading conditions are tough.

“A lot of Inditex’s success has come from the way its business is run. It is the master of efficiency and has fine-tuned operations so everything runs smoothly. It is able to get new designs onto the shop floor quickly so it can stay on top of latest fashion trends. It’s a great position to be in, except some things are out of its control.

“If the consumer is worried about the economy and is watching every penny, retailers are going to struggle to shift goods unless they discount hard. Inditex is guiding for stable gross margins this year, which implies it is not expecting to slash prices to shift stock. It will no doubt take the view that it’s better to ride out the storm than make knee-jerk reactions at the first sign of trouble.

“The same applies to unfavourable foreign exchange rates which add to near-term pressures. Currency issues typically come and go, so Inditex will probably sit tight and wait for them to pass.”

Takeovers

“The UK stock market continues to be a hive of activity regarding takeovers as predators take advantage of cheap valuations. Some situations have entered a bidding war, while others have collapsed, providing plenty of drama for investors.

“Both ICG and KKR have walked away from bid interest in GlobalData, leaving the data analytics group free to pursue a path on its own.

“KKR is more interested in gobbling up medical centre real estate group Assura, having increased its offer for the business in conjunction with co-bidder Stonepeak. It looks enough to seal the deal as Assura’s board have recommended the bid. It provides shareholders with a cash deal at a premium in line with the average for London-listed takeovers this year.”

Ricardo

“Former UK-listed support services group WSP has returned to its old hunting ground and moved on environmental consultancy Ricardo.

“Canadian rival Genivar bought WSP in 2012 as a way of getting a strong foothold in the UK market and subsequently adopted its name. It has continued to grow in size and Ricardo looks to be an ideal fit for the group.

“What’s interesting is how another UK firm had been building a stake in Ricardo but has pulled off a blinding deal to sell those shares to WSP.

“Science Group built up a 21.8% stake between February and May and has now flipped those shares for a £53.5 million profit. Not bad for a business that’s only worth £234 million.

“Science Group had rattled the cage and got in a public spat with Ricardo, accusing it of poor operating performance and ineffective governance. Its profitable campaign now puts Science Group on the radar as an activist investor to watch closely.”

TSMC

“Taiwanese chipmaker TSMC provided some reassurance that broader tariff turmoil is not derailing the AI boom with its latest update.

“The company saw revenue surge in May as big tech continues to invest heavily in AI infrastructure and, while growth slowed month-on-month from April’s record level, the company remains confident in its full-year guidance.

“TSMC has a dominant market position and continues to invest heavily in its business to stay one step ahead of the competition. This does create execution risks and the possibility for cost overruns but should firm up its role as the go-to manufacturer for semiconductors.

“Geopolitical risks remain a factor, even if the group is diversifying its manufacturing base, with the company on the frontline of tensions between China and the US. TSMC will hope recent progress on trade talks between the world’s two largest economies continues.

“Another danger is technology companies dial back spending as they come under pressure to deliver returns. However, the AI gold rush is in full swing and TSMC is reaping the rewards just as those selling picks and shovels for those participating in the 19th century equivalent did.”

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