Chinese equity rally fades away, US considers Google break-up, Rio digs deep for lithium takeover, Florida hurricane puts insurers in the spotlight, Marston’s toasts robust sales and Revolution Beauty’s ugly results

“The fizz seems to be coming out of the market as the Chinese rally fades away and futures prices imply a pullback when Wall Street opens later on,” says Russ Mould, Investment Director at AJ Bell.

“It’s natural to see some profit taking after such a strong rally for Chinese equities. Having shot up on hope of stronger economic activity, the proof will now be in the pudding as the market waits for evidence that the stimulus can quickly have a positive effect.

“Bucking the negative trend was the UK market as the FTSE 100 advanced 0.5% to 8,229, led by AstraZeneca and Unilever.

“Elsewhere, Mondi has wasted no time in expanding its empire since pulling out of the race to buy rival packaging firm DS Smith earlier this year. It’s struck a deal to buy European assets from Schumacher Packaging, boosting its capacity to make sustainable packaging which is increasingly in demand from customers taking a more environmental approach to their business. The deal put Mondi near the top of the FTSE 100 leaderboard.”

Google

“A forced break-up of Google would be an unprecedented move and potentially be the first domino to fall in a long line of dominant tech giants. What’s certain is that Google will fight any challenges to the bitter end as it won’t want to give up its ‘king of the hill’ position.

“The writing has been on the wall as authorities have got tired of the big players commanding too much market share and making it near-on impossible for others to compete. Antitrust investigations have resulted in massive fines, but these giants of industry are so cash-rich that they pay the penalty and move on without a blink of the eye.

“Google’s parent company Alphabet has been incredibly successful with its search engine, the Chrome internet browser, digital advertising, streaming via its YouTube platform, mobile systems via the Android operating system, and running an app marketplace through the Google Play store.

“Quite a lot of these activities are intertwined and that has led to considerable success for the group, yet it’s also been an uphill battle for competitors to try and win market share and that is unfair in the eyes of the authorities.

“Google could potentially be forced to spin off the Android business or Chrome browser into standalone entities; it might be blocked from making payments to third parties such as smartphone manufacturers to become the default option for services like internet search; or we might simply see more fines even though they’ve so far been ineffective from an antitrust perspective.

“What’s clear is that the market isn’t worried. Alphabet’s shares barely moved on the Department of Justice’s announcement that it was evaluating remedies to “resolve the serious competition issues”.

“This risk has been known for a long time and investors don’t appear to believe a forced break-up will happen, judging by the solid share price performance in recent years.”

Rio Tinto

“Rio Tinto paying a 90% bid premium for Arcadium shows it is serious about bolstering its exposure to lithium and it is prepared to dig deep to secure the assets.

“There is none of the usual toe in the water cheeky bid at an opportunistic price. Instead, Rio Tinto appears to have gone in with a serious offer, priced accordingly, in the hope that will be enough to get the deal done without any song and dance.

“The fact the deal is also structured purely in cash suggests Rio has learned from others’ mistakes.

“Quite a few takeovers have hit a stumbling block in recent years due to having a cash and shares structure. Investors want cold, hard cash in their hands. Being offered some cash and some shares might not fit their needs, particularly if the acquirer’s shares are quoted in a different country than those of the target company.”

Insurers / Hurricanes

“Investors have been keeping a close eye on the insurance sector as Florida braces for extreme weather.

“Non-life insurers could be affected by Hurricane Helene, which struck last month, and Hurricane Milton, which is now in full force across the US, although this will depend upon the risk they chose to insure (or reinsure) and how much damage is done and to what.

“Shares in Lancashire were down yesterday as the firm has catastrophe exposure and investors may be thinking back to 2021 when Winter Storm Uri, Hurricane Ida, summer floods in Europe and an active US tornado season hit profits hard. By contrast, shares in Beazley, which has a different mix of underwritten risk, seem less concerned.

“If the hurricane season takes a dramatic turn for the worse that could impact near-term profits for exposed underwriters, but experienced players should have managed and calibrated risk accordingly.

“For those who come through the tempests it could even be an opportunity if capital is taken out of the market as weaker players pay out or even withdraw altogether. Less capital involved could mean high rates and premiums over time.”

Marston's

“Pubs group Marston’s has chalked up a pretty solid year all told with decent like-for-like growth. Unsurprisingly growth dipped a little in its fourth quarter thanks to unusually wet weather but, given the backdrop this was a resilient performance and, all in all, this year-end trading update had several features for investors to toast.

“Strong food sales bode well ahead of the key Christmas period and crucially the company has been able to reduce the significant borrowings it built up during Covid when, like the rest of the industry, it was unable to trade as usual through disposals. These moves, including the sale of its stake in a brewing joint venture with Carlsberg, have also resulted in a more focused business.

“Marston’s has streamlined its estate – selling off a swathe of pubs back in May – and if the company can continue to chip away at a still sizeable debt pile it may one day be able to return to the dividend list after a hiatus which dates back to pre-pandemic days.”

Revolution Beauty

“This is a very ugly set of results from Revolution Beauty. Expectations were hardly set high given the disappointments the company has served up since joining the market in 2021, but worse than expected revenue in the first half of its financial year has still been enough for the market to serve up further punishment.

“The one saving grace is the poor performance relates to sales of non-core products as the company shifts focus to its core brand and this might explain the volatile response to today’s update, with the shares recovering somewhat from their intraday lows.

“Profit remains on track for now, despite the lower revenue, and this reflects improved profitability in the underlying business. However, clearing discontinued and non-core stock looks like it will continue to weigh on financial performance for some time to come.

“The company is progressing some strategic initiatives like new product launches and developing relationships with major retailers in Germany, the UK and the US, including Boots and Walmart. However, it has very little credit in the bank with investors and it will be interesting to see what major shareholder Boohoo does with its stake as it reportedly considers selling off assets in the wake of its own indifferent performance.”

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