FTSE 100 higher ahead of Fed meeting, GameStop raises more than $2 billion, Rentokil surges as Peltz vehicle takes stake, new Legal & General strategy fails to inspire and SPP faces rail station catering competition push

“The FTSE 100 was on the march ahead of the latest Federal Reserve meeting with financial stocks bouncing back from their losses earlier in the week on news of a snap French election,” says AJ Bell Investment Director Russ Mould.

“The Fed is almost certain to keep rates on hold at today’s meeting so the focus will be on any commentary that provides insight into the future trajectory of rates. Expectations for rate cuts have been pushed back, particularly in light of last week’s hotter than expected US jobs data.

“Games outfit Frontier Developments got back into profit as it got a handle on costs after a difficult 2023 – with the tailwind for demand created by the pandemic easing off and the cost-of-living crisis reducing gamers’ capacity and willingness to spend.”

Gamestop

“It’s remarkable that a company whose sales are falling, which continues to lose money, and which refuses to engage with investors and analysts via quarterly results conference calls, has managed to raise $2.137 billion at the blink of an eye.

“It seems investors are putting their faith in meme stock celebrity Keith Gill, aka Roaring Kitty, rather than looking at the fundamentals of the business.

“Gill was the inspiration for the 2021 meme stock movement that saw an army of retail investors drive up the price of GameStop. He’s been an avid supporter of the company and reappeared in recent weeks on social media as well as holding a livestream on YouTube.

“While GameStop’s 2021 price rally was short-lived, it was hard and fast enough to make some people a lot of money if they managed to get out at the top. Plenty of people might hope for a repeat of this rally and have taken Gill’s reappearance as a signal to follow the crowd, hence the big interest in buying GameStop shares in its equity offer.”

Rentokil

“Having failed to catch a mouse at Disney, Nelson Peltz is now chasing rats at Rentokil. Shares in pest control specialist Rentokil surged as it emerged activist investor Nelson Peltz’s Trian vehicle had acquired a stake in the business.

“Now a top 10 shareholder in the firm, Peltz is likely to pursue a big shake-up of a company which has struggled in comparison with its US peer Rollins, both in share price terms and financial performance.

“Given Rentokil does a large chunk of its business across the Atlantic this could include a push to shift its primary listing to the US, which would be another blow to the prestige of London as a listing venue. Trian pursued a similar approach with Ferguson which made the move in 2022.”

Legal & General

“The new chief executive of Legal & General will likely be stung by the market reaction to his new strategic plan.

“Investors are blowing raspberries at the proposals for a sweeping overhaul of the business as Legal & General confirmed it would combine some divisions and sell off the Cala housebuilder division which many casual followers may not have realised formed part of the business.

“Even the addition of a £200 million buyback isn’t enough to get shareholders on side. Targets to grow earnings at between 6% and 9% out to 2027 seem reasonably ambitious but there is perhaps some scepticism around its ability to achieve this goal.

“A key driver for growth is expected to be aggressive expansion into the market for corporate pensions deals – where companies pay Legal & General to take on the liabilities associated with their schemes.

“Globally, the company did £13.7 billion of these deals in 2023 so aiming to complete £65 billion worth just in the UK by the end of 2028 seems a stretch. The company also hopes to do more business in the US – though this can be a tough market to crack.

“There may be some disappointment that the dividend is only set to increase 2% per year longer-term after a 5% uplift in 2025.”

SSP

“A push by the Office of Rail and Road to improve competition in the UK railway station catering market is bad news for SSP.

“Selling baguettes and pasties at above-market prices has been lucrative business for SSP given its dominance in the sector. It’s been able to charge more for items as travellers don’t typically have time to shop around for deals or there isn’t a lot of choice. These travellers need to grab something quickly before they catch a train.

“Despite a potential shake-up to the market, shares in SSP barely moved on the news. Investors appear to have taken the view that SSP’s expertise and scale won’t be materially challenged, partially because it does business in many geographic territories beyond the UK.

“It’s worth noting that SSP’s share price is already depressed and has been since the onset of Covid, making it one of the few companies not to see its stock bounce back post-pandemic.

“Earnings have been held back in Europe due to falling margins, disruption from train strikes and other negative factors. There are plenty of issues management need to address and heightened competition would only add to the list.”

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