Tesco and Playtech

“The UK stock market follows parts of Asia lower on Monday with the FTSE 100 falling 1.2% to 7,548. Weak oil prices drag down shares in Royal Dutch Shell and BP, as well as many of the big mining stocks, which in turn weigh on the FTSE,” says Russ Mould, Investment Director at AJ Bell.

Tesco

“Tesco continues to be very proactive in its quest to cope with fierce competition in the grocery market.

“Following its acquisition of wholesaler Booker, Tesco’s latest move via an alliance with Carrefour could put it in an even stronger position to cope with the proposed tie-up between Sainsbury’s and Asda, plus ongoing competition from discount supermarkets Aldi and Lidl.

“Chief executive Dave Lewis seems intent on not only repairing Tesco following previous strategic mistakes such as expanding too much overseas and a high profile accounting scandal, but also fortifying the business for the next stage of its evolution.

“Combining forces on the purchasing side could give Tesco and Carrefour stronger buying power, thereby securing goods cheaper.

“That may be good for the supermarkets but it could be terrible news for suppliers who were already shivering in their boots following the Sainsbury’s/Asda tie-up which itself threatened to put the squeeze on companies supplying goods and services into the supermarket sector.”

Playtech

“A profit warning from FTSE 250 gambling technology group Playtech leaves its shares trading at a four-year low amid heightened competition and industry price pressures in Asia.

“These problems have taken a bite out of earnings and triggered the company’s second profit warning in a year. This is a serious issue because Asia is one of Playtech’s most important regions from an earnings perspective.

“It is no wonder the business has been trying to diversify geographically such as a recent deal to buy a majority share of Italian gaming company Snaitech.

“Sentiment is likely to stay negative towards Playtech until it can provide more clarity of the scale of the problems in Asia and how it is going address them.

“The business has historically been very acquisitive but could the tables now turn and Playtech be seen as a takeover target? The valuation may look more attractive but a bid looks very unlikely unless a predator can find a solution to the company’s Asian problems.”

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