Markets press ahead while Future makes a move on GoCompare owner

“Little by little the UK stock market is moving ahead which is exactly what investors need after such turmoil earlier this year. The FTSE 100 advanced another 0.3% to 6,452, meaning the blue-chip index has risen by nearly 16% since late October. It’s still not high enough to match the 7,600 levels seen in January, but investors should still be happy that the current direction of travel is upward,” says Russ Mould, Investment Director at AJ Bell.

“US markets have more of a spring in their step with the Dow Jones index last night closing above 30,000 points for the first time.

“Helping to lift investor sentiment is a higher oil price – rising again on Wednesday by 1.3% to $48.54 per barrel – as well as hopes for a smooth transition from Donald Trump to Joe Biden as US President, and for the widespread roll-out of Covid-19 vaccines. This new-found optimism has knocked gold, but the precious metal seems to have found a floor just above $1,810 per ounce.

“Utilities, consumer non-cyclicals, energy and healthcare led the FTSE 100, while the mining sector gave up some of its recent gains and real estate was out of favour.

“Investors will be closely watching Rishi Sunak’s Spending Review later today to see how he plans to support employment in the UK and allocate taxpayers’ cash to spend on infrastructure.

“The pound traded 0.1% higher against the US dollar at $1.3378 and may tread water until the details of the Spending Review are announced.”

Future / GoCo

“Future’s offer for GoCompare owner GoCo is one of those deals where you’re initially taken by surprise but then quickly realise there is logic in the transaction. In hindsight, it was a natural target all along.

“A lot of people still associate Future as a magazine publisher yet its business model has significantly evolved beyond traditional media. It has a platform to run a wide variety of websites which have a powerful way of getting people to spend money.

“For example, someone looking for a new TV might search the internet for ‘best TVs to buy’. They’ll click on a website with reviews and then follow the links to buy one of the recommended products. There is a good chance Future owns that website and gets affiliate marketing income linked to any sale.

“GoCo’s purpose is to present a range of products – be it insurance, energy or broadband – and then collect a commission payment for any transaction, so the model is very similar to Future’s.

“Since being demerged from Esure, GoCo has already received takeover interest from Zoopla’s owner ZPG which was rejected. Speculation then grew that a portal business like Auto Trader or Ebay might be interested in buying it.

“GoCo’s shareholders may not like the fact that Future’s offer is only a 23.6% premium to last night’s closing price which some might not think is generous enough, as well as the fact it is paying in a mixture of shares and cash. Investors tend to prefer all-cash deals.

“There is a lot of excitement from Future about the deal being materially earnings enhancing and big cost synergies. However, one mustn’t forget that such claims are standard territory for acquisitions and that big deals only work if the buyer can successfully integrate the acquired business and there isn’t a clash of cultures. Buyers often underestimate these factors.

“Thankfully Future isn’t using the word ‘transformational’ which is normally the kiss of death for acquisitions. It’s done plenty of deals in its lifetime and at face value this one looks credible.”

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