FTSE 100 lower amid political turmoil, speculation Ashtead could switch stock listing to US, Nikkei higher on economic surprise and shareholder joins push to oust THG chair

“Political turmoil in Europe saw the FTSE 100 start the week on the back foot with only a handful of names on the index trading in positive territory,” says AJ Bell Investment Director Russ Mould.

“An unexpectedly strong showing for far-right parties in European elections in France prompted President Emmanuel Macron to call a snap parliamentary election to be held within the next 30 days. This injects a big dose of the uncertainty which markets hate – with the euro dropping sharply in response to the developments.

“Financial stocks were among the worst performers in London as investors digested the news. Also affecting sentiment were Friday’s better-than-expected US jobs numbers which push back against the narrative that rate cuts are imminent.

“In the UK, the jobs market looks far less rosy as unemployment hit its highest level since December 2020 when the Covid pandemic was in full effect.

“In Asia, most markets were closed for public holidays but Japanese stocks got a boost from figures which showed the economy contracted, but at a slower pace than expected. The Nikkei 225 has largely stalled since hitting a series of new record highs in March and April, with investors likely waiting on further signs its corporate world and economy can be reinvigorated.

“Another shareholder at e-commerce platform THG, Dutch investment firm OVMK, has joined with activist Kelso in saying it will vote to have chair Charles Allen removed. Frustrations with the strategy are understandable given the shares are trading more than 85% below their 2020 IPO price.”

Ashtead

“There is a twist to speculation Ashtead might shift its main stock listing from London to the US. The trend for FTSE 100 stocks to switch listings has been gathering pace as companies chase higher valuations across the pond.

“Having a premium equity rating not only massages some egos, but it also means companies might prefer to use their richly priced shares to fund deals rather than cash. If they are buying another US-listed company, investors on the receiving end of a deal might also prefer to have US-listed stock rather than shares in a FTSE 100 entity. CRH certainly talked about acquisition opportunities as part of its rationale for switching its main stock listing from the UK to the US.

“On paper, the fact Ashtead mainly operates in the US means it would be logical to have its main stock listing in the same geographic location. However, Ashtead already trades on a higher valuation than its closest US-listed peer, United Rentals. Ashtead trades on 17.4 times next 12 months’ earnings versus United Rentals’ 14.6 times, so the valuation argument is thrown out of the window.

“What makes the reports about Ashtead’s potential listing switch intriguing is that the motivation appears to lie in staff remuneration, not equity valuation. There is a suggestion that Ashtead’s US-listed peers have their pockets lined with gold whereas the UK business only pays out silver or bronze.

“Theoretically, Ashtead could propose a big bump in the remuneration package for its directors without having to switch listing – it would simply need shareholder approval. Yet pay deals attract considerable public scrutiny and Ashtead might want to avoid being seen as the house of fat cats on a relative basis to UK-quoted peers.

“Sitting on the US stock market side-by-side to other companies doling out the riches to senior staff might not attract as much negative attention.”

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