FTSE 100 hit by Ashtead warning, takeover talk surrounds Halfords and Musicmagpie

“It’s rare to see construction rental group Ashtead issue a profit warning so when one does come along, it’s natural for the share price to take a beating. That’s exactly what has happened today and why it has caused a considerable drag on the FTSE 100,” says Russ Mould, Investment Director at AJ Bell.

“Also weighing on the UK blue chip stock index was catering group Compass as its full year revenue and earnings per share were marginally below market expectations.

“Tomorrow’s session includes the latest minutes from the Federal Reserve regarding its decision to keep interest rates unchanged. That has the potential to move markets, so do results on the same day from chip specialist Nvidia which has been this year’s stock market darling. It’s been a major driver of US equity market performance in 2023 so the slightest bit of bad news from the company could send shockwaves across the market.

“On Wednesday there is the latest outlook for the UK economy and public finances from the Office for Budget Responsibility, alongside the chancellor’s Autumn Statement.”

Ashtead

“Ashtead has consistently delivered strong returns over a long period but even great companies can get it wrong and the company has been heavily punished for warning on profit today.

“Tool rental doesn’t feel like the most Hollywood of sectors but the writers’ strike in the US has, along with fewer natural disasters, been the culprit behind the warning.

“When you add a $2 billion depreciation charge to the mix, an occupational hazard of owning lots of equipment, and materially higher interest costs, then it’s little wonder that the market has reacted negatively to the news.

“Whether this is a short-term blip or something more serious will depend on there being no deterioration in the outlook when it posts second-quarter and first-half numbers in full on 5 December or when it delivers third-quarter results next March.

“This does feel like a bit of a one-off but investors will be sensitive to anything which could threaten its strong track record of dividend growth going back well over a decade. What would really prompt concern would be signs of a wider slowdown in US construction and infrastructure spend.”

Takeover targets: Halfords & Musicmagpie

“As the takeover machine keeps whirring among UK stocks, two potential deals have come out of the blue with unexpected suitors.

“Few people would have predicted Redde Northgate would be sniffing around Halfords, and BT around Musicmagpie, but taking a step back there is some logic behind such tie-ups.

“Reports suggest Redde Northgate held merger talks with Halfords but couldn’t agree on valuation. At face value, a van hire company buying a retailer is not the most obvious partnership. However, they have complementary skills and putting them together would broaden their reach as Redde could have greater access to the consumer market and Halfords to the business market.

“Halfords has been trying to reposition itself as a motoring services business in recent years, becoming less reliant on selling bicycles and investing more in garages and hiring workers to fix vehicles. Redde Northgate was formed from the merger of two businesses active in accident claims management and van hire.

“As a combined group, in theory a Halfords/Redde entity would have more skills by which to try and take market share in the motoring sector, one that is undergoing rapid evolution due to the shift to electric vehicles.

“As for Musicmagpie, the business has evolved from selling CDs and DVDs for pennies to one that sells, fixes and rents out mobile phones and other electronic devices. BT and its mobile brand EE deal in large volumes of phones, so having an in-house refurbishment business in the form of Musicmagpie would make sense. It also helps that the latter is going cheap, having been a disaster since it joined the stock market a few years ago.

“Private equity group Aurelius is also in on the ticket to potentially buy Musicmagpie, perhaps interested in taking the retail side of the group which sells goods via its own website and through Ebay and Amazon.”

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