FTSE shrugs off political machinations as retail sales struggle, JD faces more regulatory trouble, UK stocks continue to be bid targets in the Great British Take Off

“The survival of Boris Johnson in a confidence vote of Conservative MPs is met by a shrug on the markets on Tuesday,” says AJ Bell Investment Director Russ Mould.

“Sterling was stable, the FTSE 100 was broadly unchanged and, while political turmoil might eventually start to spook investors, for now the focus remains firmly on inflation.

“At the margin, the pound has eked out some gains on the assumption Johnson’s weakened position might lead to a less strident policy in relation to the EU, particularly on the Northern Ireland protocol.

“The pressure on households from rapidly rising prices is reflected in weak retail sales data for May and figures from Barclaycard showing spending on essentials like food, fuel and utilities bills is going up rapidly.

“This will send a chill down the spine of any consumer-facing businesses which are dependent on discretionary spending.

“In this context sportswear retailer JD Sports could well do without the disruption of another tussle with the Competition and Markets Authority.

“Fresh from the probe into its ill-fated takeover of Footasylum, which was a contributory factor in the departure of long-standing boss Peter Cowgill, the regulator has put the company on the back foot over fixing the price of sales of Rangers FC replica kit.

“The size of the provision to cover any resulting liabilities is modest but, nonetheless, this is an unwelcome distraction as the business looks to reset in the wake of Cowgill’s exit.”

Biffa / Ted Baker

“We seem to be facing the Great British Take Off when it comes to UK companies being acquired and delisted from the stock market. Biffa looks to be the next candidate to be served up a takeover offer from private equity, implying it could leave the stock market for the second time in its history.

“The company started out life as a haulage business supporting coal fired power stations. It was acquired by Severn Trent in 1991, demerged in 2006 and subsequently floated on the UK stock market. Two years later it was bought by a private equity consortium. In 2016 the company relisted and more recently caught the market’s eye thanks to the surge in interest for anything ESG-related.

“It’s easy to see why private equity would want to own Biffa. Its services are in demand whatever the economic climate and a lot of inflationary pressures can be passed on to customers thanks to inflation-linked pricing structures for many of its contracts.

“Strategically it has made good progress with investments in plastics recycling and energy from waste services. Steady money coming in, an opportunity to increase scale and an undemanding equity valuation are all key attractions for private equity and Biffa ticks these boxes.

“Buying Biffa is a no-brainer compared to Ted Baker whose preferred acquirer has pulled out of the race to snap up the troubled fashion retailer. It would take a lot more work to generate value from buying Ted Baker given its patchy past and strategic mishaps, so it’s not surprising that the sale process isn’t going smoothly.

“Anyone buying a troubled business will want a knock-out price to compensate for the extra risks involved, so perhaps conversations haven’t been going well in terms of a price that both the suitor and target can agree on.”

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