Markets subdued, Bestway takes stake in Sainsbury’s and Direct Line boss gets the boot after dividend shocker

“Despite a good showing on Wall Street last night thanks to better-than-expected US GDP figures, Friday was a damp squib for European stocks, with little change on the main indices,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 nudged up 0.1% to 7,769, with energy companies doing their best to lift the index, although the drag from miners was proving hard to beat.

“In mainland Europe, fashion retailer H&M disappointed with its latest quarterly numbers, sending the share price down 6.6%. Cost pressures, weak consumer confidence and loss of its Russian operations were blamed. Luxury goods group LVMH was also in the doghouse after failing to improve margins.

“In the UK, nearly-new car seller Motorpoint slipped 2% after flagging weaker demand and saying a drop in the value in electric vehicles and fewer car finance deals will hurt profits.”

Sainsbury's

“Bestway’s purchase of a stake in Sainsbury's has come out of the blue. While Bestway says it doesn’t intend to make a bid now, there is logic in putting the two companies together, with echoes of how Tesco thrived from buying Bookers.

“As the UK’s largest independent cash and carry business, Bestway’s strategy is to be seen as a place where retailers, caterers and cafes can obtain all the stock they need at a good price.

“If Sainsbury’s was part of the same group, both sides could benefit. In theory, Bestway could tap into the supermarket’s buying power and obtain stock at a lower price, thus making its proposition more appealing for its customers. Sainsbury’s could expand its reach and have good access to a broader customer base including foodservice and pet shops, while also being able to compete better against Tesco.

“While Bestway says it won’t make a full takeover bid now, the fact it has openly stated it wants to buy more shares implies it wants a seat at the table. Having a stake above 3% arguably gives Bestway the power by which to demand proper conversations with the business and push for a seat on the board of directors.

“A notable stake in the business also suggests it is serious about wanting to collaborate. It’s very rare for these types of transactions to simply be about making money from owning the shares. Bestway says its intention is to hold the shares for investment purposes, but the extra line that it ‘looks forward to supporting the executive management team’ implies that this is going to be a hands-on relationship.

“Publishing a statement inviting existing shareholders to sell some or all their stake to Bestway also suggests it is serious about building up its stake in Sainsbury’s.

“Should Bestway want to make a full bid down the line, it would have to make a convincing offer to get Qatar Investment Authority to want to part with its 14.3% stake, and the same for Vesa Equity Investment which owns just over 10% of the supermarket.”

Direct Line

“You can’t walk away from the kind of stock market disaster served up by Direct Line this month without a senior executive carrying the can.

“Shareholders will have been looking for someone to take a bit of responsibility and chief executive Penny James has agreed with the board she will step down – the statement open to interpretation on whether she jumped or was pushed.

“It was not so much the decision to scrap the dividend in and of itself which did for James, it was more what lay behind it.

“Direct Line had been happily buying back its own shares less than a year ago and left its capital buffers too bare to cope with a period of extreme weather events in 2022, which while unusual shouldn’t have been enough to put Direct Line in such a perilous position.

“Where James probably warrants more sympathy is on the inflationary pressures which are continuing to bite across the whole industry. However, none of its major peers have found themselves in Direct Line’s predicament yet.

“Chief commercial officer Jon Greenwood stepping up as acting chief executive sounds exactly like what it is – a temporary move. Chair Danuta Gray will have to get the next appointment right if she’s to avoid coming under greater scrutiny herself.

“What happens next with dividends will also be in focus for investors – there has to be a risk of no dividend for 2023 either as the company looks to rebuild its capital position. Which would be truly lean times for a shareholder base who had got used to a generous stream of income.”

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