Segro is in a sweet spot, and William Hill takeover not a done deal

“Renewed confidence in a US stimulus deal helped lift stocks on Wall Street and in Asia overnight but the good feeling didn’t extend into today for the FTSE 100,” says AJ Bell Investment Director Russ Mould.

“A surge in the pound as the EU’s chief Brexit negotiator Michel Barnier commented that a deal with the UK could be in reach helped put the index firmly on the back foot with the strength in sterling undermining the value of the large number of FTSE 100 constituents’ overseas earnings.

“The reaction to Barnier’s comments overshadowed news of record UK Government borrowing and higher than expected inflation figures.

“Elsewhere on the London market gold miner Centamin was the big loser, falling nearly 20%, as it outlined the impact of recent production problems. The gold price itself continued to consolidate its position above $1,900 per ounce as investors weighed risks around coronavirus and the US election.”

Segro

“If you told someone 20 years ago that warehouses would be the most sought-after property class in the future they might look at you as if you’d gone slightly mad.

“However the rise of online shopping – a trend which has only been accelerated by the covid-19 pandemic – has created huge demand for the facilities required to store inventory and process online orders.

“This driver has helped propel warehouse owner Segro into the highest echelons of the UK market and was reflected in a robust trading update from the company.

“Rent collection was strong, particularly compared to that experienced by owners of offices and shops. However, the company still paid a portion of its dividend in shares.

“One obstacle to growth for the group is that, while it has the means at its disposal to acquire properties, it has become increasingly expensive to buy industrial assets as institutions and other investors have cottoned on to the strong dynamics in this market.

“This was reflected in the terms of the transaction announced alongside today’s trading update, with the well-located urban warehouse estate in Canning Town purchased at a premium valuation.

“The company can generate higher returns from its development pipeline, and is channelling most of its investment in this direction, but developing assets also comes with a higher degree of risk.”

William Hill

“William Hill’s latest trading update could be one of its last as a listed company if Caesars succeeds with its takeover offer. The latter is most interested in the US operations which remained the bright spot in the 13 weeks to 29 September with 10% total net revenue growth.

“It’s easy to see why Caesars wants to do a deal. William Hill would turbocharge its ability to grab a larger share of the US gaming industry which some analysts believe could be worth as much as $35 billion in time.

“William Hill is certainly making good progress in the US, adding more US states to now have a presence in 14 territories. While the UK operations are starting to recover, strategically they are like a ball and chain around its neck with ever-tightening regulation putting pressure on earnings.

“Lots of people have said Caesars isn’t offering enough for William Hill, but ultimately it will be down to shareholders to decide whether or not to accept the offer. So far the big institutional investors are keeping strangely quiet on their voting intentions which suggest the takeover is far from a done deal.”

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