Sirius Minerals in surprise takeover talks and Sainsbury’s dragged down by Argos

“A new twist in the Middle East saga that has dominated headlines this year put the boot into the markets again. Stocks were in negative territory on Wednesday after Iran targeted US troops with missile strikes,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 fell 0.4%, mainland European markets fell by 0.5% to 0.7% and Asian markets saw even worse declines.

“Brent Crude oil prices rebounded, up 1.1% to $69 per barrel while gold prices advanced 0.7% to $1,586, having briefly exceeded $1,600 per ounce when the news broke.

“This is the not the healthy start to the New Year expected by investors. Now could be the time to ensure portfolios are well diversified."

Sirius Minerals

“Anglo American has appeared as a white knight for Sirius Minerals, sounding out the troubled potash miner with a 5.5p per share takeover approach.

“Many shareholders will view this as a derisory sum, thinking their investment is worth multiples of this amount. In reality, Anglo is offering what it thinks the project is worth today (plus a small sweetener), not what it could be worth when in production.

“Shareholders must think hard about the situation. Rejecting any bid – should an official offer be made by the 5 February deadline – could be a risky move as there is no certainty that Anglo would come back with a higher amount or that a bidding war happens.

“Without a bid, Sirius remains in a very difficult position financially. Would it be better for shareholders to accept 5.5p per share when the alternative could be zero if the miner can’t raise the required money to keep the lights on?

“From Anglo’s perspective, Sirius’s financial problems have created an opportunity to scoop up a development-stage project for what could be a good source of long-term revenue generation and, importantly, not have to pay top dollar to buy it.

“It has deep pockets and the skills to build large projects, suggesting it is a perfect owner for Sirius. While it isn’t currently known for potash mining, Anglo has a history with the local area, having previously been joint owner of the Boulby potash mine with ICI, situated next door to Sirius’s asset.

“Miners are under pressure from an ESG perspective to think about their future interests, particularly exiting the thermal coal industry. Anglo has hinted that it will move away from coal and replacing those interests with potash – used as a fertiliser to help boost crop yields – could be a natural step forward for the business.”

Sainsbury's

“Looking at this update from Sainsbury’s you might be left asking if the Grinch had stolen Christmas, as weaker sales of toys and video games at Argos proved a drag on sales.

“The brighter news is that people don’t seem to have given up on eating and drinking over the festive period and grocery sales actually nudged ahead in a very tough market.

“In what amounts to a contest to be the best of a bad bunch, industry data shows Sainsbury’s performed least worst out of the ‘big four’ groceries firms during Christmas.

“This represents something of a turnaround. Since acquiring Argos in 2016, the catalogue retailer has often come to the rescue of Sainsbury’s struggling supermarket operation.

“The market will therefore hope the recent weak performance at Argos genuinely reflects the one-off factors flagged by CEO Mike Coupe, like the lack of a big gaming release, and not something more troubling with the acquisition.

“It is encouraging to see Sainsbury’s improving its performance in its supermarkets after a period in which the pursuit of a merger with Asda arguably saw the group take its eye off the ball.

“In a highly competitive market, the business really can’t afford for customers not to be satisfied.

“Other reasons for encouragement include strong online sales and a very robust performance from its clothing line Tu, suggesting this is an area in which the company is really besting its peer group.”

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