FTSE 100 struggles for direction, Currys’ takeover battle begins and Nintendo hit by Switch delay reports

“The FTSE 100 made a sluggish start to trading on Monday, lacking some direction amid the absence of big corporate or economic releases,” says AJ Bell Investment Director Russ Mould.

“That changes later in the week when the minutes of the latest Federal Reserve meeting are released and the AI stock Nvidia unveils its latest quarterly results. There is little margin for error for the chip specialist given the supercharged surge in its share price which has continued into 2024.

“Nvidia’s weight in the market and ties to the dominant theme has driven equities over the last year or so, which means whatever it comes out with will have wider ramifications for investors.

“While the latest property price data from Rightmove is encouraging, UK households are still heavily incentivised to make savings where they can and that is driving strong demand for comparison site MoneySuperMarket – particularly in the insurance realm. That the company is beating expectations without a widespread return of energy switching is a sign the business is in a healthy place.”

Currys

“The bid battle for Currys has begun as multiple parties throw their hat in the ring. Elliott kicked things off at 62p per share which was rejected by Currys. A suitor would have to offer at least 71.1p per share to match the 51% average premium seen on UK-listed takeovers in 2023.

“Currys is the last big UK electricals chain with a physical store estate which makes it a unique asset on the domestic stock market. In theory, that status deserves a premium takeout price. However, in this case, its unique status is down to it being the last man standing in an industry which has migrated online. Retaining this status requires a lot of hard work rather than Currys having a major advantage over its peers.

“The company has kept going over the past few decades thanks to a bigger push on customer service by helping people who need advice on technology or equipment fixed. For some, that personal touch is preferrable to buying something online.

“Over the years, the UK business has downsized and sharpened focus on retail parks where stores have the kind of space needed to showcase products and advise customers.

“It’s not been an easy journey for Currys as its mobile phone arm has suffered from shifting consumer habits whereby people are upgrading handsets less frequently. Across the board, Amazon and other online retailers have pushed hard on price and Currys has had no choice but to match them.

“Over the past year, consumers having been shying away from big-ticket items which has created a tougher environment in which to shift TVs and laptops.

“Currys’ Nordics business has struggled with vicious competitive and inflationary pressures, but there is now a shift whereby rivals are focusing more on profit and cash and less on market share growth.

“These headwinds have weighed on the company’s valuation and left the share price in the gutter.

“Frasers is always one to spot a bargain and last year built a stake in the business. Elliott’s takeover approach implies it sees a resilient streak in Currys and that there is turnaround potential. The fact Chinese retail group JD has now joined the party by expressing interest in the business shows it could be time to load up on the popcorn and sit back and enjoy a bidding war.

“It is unlikely that Frasers would make a bid for the group. While it has expressed a desire to be a bigger player in electricals, it prefers to buy companies when they are on their knees, not after someone else has also pushed up the price with an offer. Frasers had its chance to bid for Currys last year when no-one else was interested.”

Nintendo

“The release of a next generation console is a big staging post for a games company so it’s no surprise investors have reacted with shock and disquiet to speculation Nintendo may not get its new iteration of the Switch to market this year. Reports say the company is guiding its game publishing partners that the new machine won’t hit the shelves until the early months of 2025.

“While a blow, the importance attached to these releases means ultimately it is sensible for Nintendo to delay if it means the finished product is released without any technical issues.

“Nintendo has enjoyed a renaissance over the last decade or so, with the release of Pokémon Go and the success of the original Switch helping to make the brand relevant to a whole new generation of gamers.

“More recently, the company has been tapping into its catalogue of IP and the massive success of the Super Mario Bros movie lights up a big potential avenue for licensing revenue in the future.

“Nintendo also benefits from its cross-generational appeal with less sophisticated hardware which is cheaper to make, helping to underpin strong margins on its flagship console when for rivals these sales are a loss leader.”

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