Manchester United bidders circle and Darktrace orders review into finances

“The FTSE 100 was holding its position above 8,000 on a day somewhat lacking in catalysts thanks to US markets taking a break for the President’s Day holiday,” says AJ Bell investment director Russ Mould.

“Asian stocks were higher as China’s central bank kept rates unchanged for a sixth consecutive month – hopes for a continuing recovery in demand from the world’s second largest economy helped support commodity prices.

“An updated estimate of US GDP for the fourth quarter of 2022, as well as minutes from the Federal Reserve’s latest meeting and PMI readings from both sides of the Atlantic dominate the agenda for the remainder of the week.

“The Fed minutes are likely to be closely scrutinised after comments from Fed members suggesting rates could go up 50 basis points in March spooked investors looking for a pivot away from rate hikes altogether.”

Tesco

“We’re in an era where companies are focusing on what they do best, rather than trying to stretch themselves too thin by doing too much.

“We’ve seen numerous demergers in recent years as companies streamline to have a sharper focus and unlock hidden value in their business. Doing less is more, as it provides management with an opportunity to make small incremental changes to operations and have the core business running like a well-oiled machine.

“With that backdrop in mind, one should expect to see many companies like Tesco concentrate on what they do best and find someone else to take over activities on the periphery.

“Offloading Tesco’s banking arm makes perfect sense. Supermarkets should concentrate on grocery and core essentials that fall under general merchandise, such as frying pans, greetings cards and a small line of toys to keep the kids happy while their parents shop. Things that people can pop into their basket without much thought.

“The days of consumer-facing companies offering a broad range of services to their customer base are long gone. Banking is a heavily regulated business and staff must keep on top of a lot of rules and complexity. The broader financial services space is highly competitive and requires significant investment in technology to improve systems.

“Founded in 1997, Tesco Bank is a profitable entity, offering credit cards, loans, savings and insurance. It has more than 5 million customers, so is a significant player in the market. That means it could be an attractive acquisition for another banking provider seeking to grow their market share.

“However, the fact that Sainsbury’s put its banking arm up for sale a few years ago and then decided to keep it might suggest there is a big difference between what it thought the business was worth and what someone else is prepared to pay. Might the same apply to Tesco?

“Lloyds and Virgin Money might be interested in Tesco Bank and so might NatWest, which was previously the supermarket’s joint venture partner when its parent company used to go under the name of Royal Bank of Scotland.

“Tesco is likely to be more interested in improving its supermarket experience and delivery capabilities than expand a banking business. With Aldi and Lidl snapping at its heels, it makes sense to streamline now.”

Manchester United

“As bidders continue to circle one of the globe’s most valuable sports franchises, it seems no party has reached the £6 billion valuation put on the business by Manchester United’s current owners.

“A tense battle awaits with no suggestion interest from Saudi Arabia has been made concrete. For now, it looks a two-horse race between Ineos-owner Jim Ratcliffe and Jassim bin Hamad Al Thani – the latter a proxy for the Qatari state.

“An alternative is a potential investment rather than takeover by hedge fund Elliott Investment Management with the Glazer family retaining control.

“The Glazers are unpopular with the fanbase but there are signs United devotees would be equally unhappy with a Qatar-backed takeover given concerns about sportswashing.

“The storied history of the club and its rarefied place in the UK’s cultural landscape might mean greater scrutiny from regulators and other relevant authorities of a Middle Eastern state effectively taking control in the way they have with Manchester City and Newcastle.

“A multi-billion-pound price tag may sound fairly reasonable given Manchester United’s commercial reach, one which extends into lots of different markets, but any buyer would likely have to invest heavily in an unbalanced playing squad, outdated training facilities and a stadium in need of refurbishment.”

Darktrace

“Better late than never. While its first response to criticisms aired by short seller Quintessential Capital Management was a boiler plate rejection, Darktrace shows it is now taking concerns over its accounting seriously by bringing in a third-party auditor to conduct a review.

“The appointment of E&Y will do little to quieten the bears in the short term but assuming said review gives Darktrace a clean bill of health it would at least allow the AI-driven cyber security firm some breathing space to re-establish some credibility with the market.” 

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