Middle East tensions put oil and defence stocks in focus, AO to buy musicMagpie in bid to strengthen electronics recycling position

“The FTSE 100’s large exposure to the oil and defence sectors meant the index moved higher in response to increased tensions in the Middle East,” says Russ Mould, Investment Director at AJ Bell.

“Brent Crude oil prices jumped 2.2% to $75.19 per barrel as traders worried about potential disruptions to supply from the region. That pushed up shares in BP and Shell.

“Iran’s missile attacks on Israel also put the spotlight on defence stocks, lifting BAE Systems by 1.7% and Chemring by 0.8%.

“It’s times like these that investors also gravitate towards supposed safe-haven assets, namely companies that might be in demand in both good and bad times. That explains why drugs group AstraZeneca and British Gas owner Centrica were in demand.”

AO / MusicMagpie

“AO is buying musicMagpie for a fraction of the price at which it joined the stock market three years ago. It’s somewhat ironic that a seller of CDs for pennies on eBay is being bought for a song.

“musicMagpie has been a disaster on the stock market, failing to make money as a business and creating losses for investors as the share price drifted downwards.

“Alongside shifting old CDs and DVDs, the business bought used phones and laptops, did them up and rented them out. Quite a few customers defaulted on payments and the business had a weak balance sheet.

“AO’s purchase price might be cheap relative to the IPO but this will not be an easy bolt-on acquisition.

“Strategically, the two companies fit together nicely – they are both into electronics recycling and AO will now have greater scale. However, musicMagpie is not in a good shape and AO is taking on a big risk just at the point when its core business has finally stabilised after a difficult period.”

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