Hong Kong shares jump, plenty of small cap M&A and Associated British Foods sticks to guidance

“The Hang Seng is once again at the centre of all the action on the stock market with a 2.3% jump to 19,900. Much of the gains were down to ongoing optimism around more relaxed Covid restrictions which might lead to greater economic activity,” says Russ Mould, Investment Director at AJ Bell.

“Real estate and tech stocks were in demand as investors sifted through the pack looking for names that have been particularly weak this year, hoping they would be among the stock market leaders if we do see a sustainable rally in Chinese shares.

“Also providing some relief to investors was new inflation data which didn’t contain any nasty surprises. China’s consumer price index dropped to 1.6% in November year-on-year versus 2.1% in October. Producer prices fell 1.3%, representing the second month in a row of declining factory gate prices.

“The FTSE 100 slipped 0.1% to 7,462 with strength in consumer cyclicals and utilities offset by weakness in energy stocks.

“It’s been a while since Ocado graced the top of the FTSE risers yet today it managed to claim such a victory. With no news flow or broker upgrades to power the shares, it seems as if investors were simply regaining their appetite for riskier parts of the market that had been heavily sold down this year.

“Ocado reportedly told analysts earlier this month that it would scale back growth plans for more automated distribution centres and that it wouldn’t sell its share of a joint venture with Marks & Spencer to raise new funds.”

Takeover Activity

“There was plenty of news around takeovers in the middle and lower ends of the market cap spectrum. Emergency power generator business Aggreko tabled a bid for small cap loadbank specialist Crestchic following a string of positive news flow from the target and evidence of a successful turnaround from its previous challenges under the name of Northbridge Industrial Services.

“Crestchic has become a retail investor favourite this year because of the positive news flow and an impressive share price hike (+122% year-to-date). Comments on social media suggest its army of fans don’t want to see it taken over, at least not at the price offered by Aggreko.

“Sun Capital Partners is in talks to buy professional services group K3 Capital while troubled media group Bonhill reported takeover interested in parts of its business, having recently put itself up for sale.

“Interestingly, a bid for car retailer Pendragon has been called off. Hedin Mobility blamed challenging market conditions and an uncertain economic outlook for withdrawing its interest.

“Car retailers were in strong demand during the pandemic as a shortage of new vehicles and a sudden jump in demand for used cars made the market red hot. That bubble now seems to have burst as people watch their pennies and find ways to keep their existing motor running for longer rather than seeking an upgrade or changeover.”

Associated British Foods

“Amid the current consumer turmoil, for a retailer to stick to its guidance is an achievement in itself. Primark-owner Associated British Foods’ in-line trading update will provide a healthy dose of reassurance to its shareholders – even coming, as it does, just weeks after full year results.

“While inflationary pressures remain the simple fact that input costs have become less volatile gives investors more visibility and also makes it lot easier for the business to plan for the future.

“The company’s conglomerate structure has been a strength in 2022 as the food and ingredients business has proved resilient and that continues to be the case.

“Primark is off to a strong start to the current financial year and the continued roll-out of stores is a show of confidence that the budget chain’s offering will resonate with shoppers in a difficult economic environment. It is notable the extent to which Primark is prepared to take some pain on margins to retain its bargain credentials.

“There’s no mention of the success or otherwise of Primark’s new click and collect trial as it finally dips its toe in the e-commerce waters.

“There remains resistance to the idea of going fully online and offering a delivery service – Primark relies on people making impulse purchases once they are through the doors – so click and collect makes sense as an initial step to having a meaningful online presence.”

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