China rally losing steam, gambling stocks clobbered, higher bid for Mulberry and PageGroup downbeat with recruitment under pressure

“The devil is always in the detail and once again China has glossed over how it intends to accelerate economic growth,” says Russ Mould, Investment Director at AJ Bell.

“Investors were hoping Saturday’s event with China’s finance ministry would hold all the answers; instead, it was too top level to sustain the market’s optimism. While Chinese shares continued their ascent on Monday, the pace has slowed and some investors might now be wondering if we’ve seen the best of the rally.

“Defensive stocks were in vogue on the UK stock market, implying that investors are slightly troubled about what might be coming down the line. Utilities, supermarkets and defence groups led the way, a trio one normally associates with investor nervousness as they turn to companies that should grow in both good and bad economic conditions.”

Gambling Sector

“Several names in the gambling space were underwater on speculation Labour is considering plans to double taxation on online casinos and bookies in the upcoming Budget.

“Labour is desperately looking for ways to raise revenue, having ruled out increasing taxes on ‘working people’. It’s notable that the speculation suggests so-called ‘lower harm’ activities like bingo and the lottery will be untouched by any tax changes.

“The betting industry will argue higher taxes could lead to an increase in illegal black-market gambling and ultimately firms may well pass on any extra costs they incur to punters, potentially doing more harm.

“Today’s news is a salient reminder of the strengthening headwinds the sector faces in terms of regulation and tax and that this remains a live risk for investors to consider.”

Mulberry / Frasers

“Frasers has little chance of winning the bid for Mulberry given the gigantic obstacle in its path.

“The presence of a 56% shareholder in Challice means Mulberry’s hands are tied regarding a takeover. Whatever Challice says goes, as its majority stake effectively gives it control of the company. Frasers is also a big shareholder but its 37% stake just isn’t big enough to call the shots.

“Challice wasn’t swayed by Frasers’ original takeover approach, perhaps because it has visions of morphing Mulberry into its own luxury goods interests.

“Everything now rides on Challice being won over by Frasers’ enhanced offer, which has been lifted to 150p per share. Although generous relative to where the stock has traded this year, the bid is still a fraction of the 300p-plus level at which the shares traded only a few years ago, therefore it is unlikely to cut the mustard with Challice.

“It’s notable that Mulberry’s shares have only bounced to 126p on Frasers’ revised bid, leaving them well below the actual price on the table. That’s the market’s way of saying it doesn’t believe this is the winning deal.”

PageGroup

“The recruitment sector is sensitive to economic conditions so PageGroup’s downbeat third-quarter trading update and further reduction in its own headcount felt instructive on a broader level.

“The latest survey from the British Chamber of Commerce showed a drop in the proportion of UK employers looking to hire and PageGroup’s struggles across its global footprint suggest this trend is being matched in other parts of the world.

“The company’s weak performance in September is particularly disappointing as this is typically a month when recruiters see a rebound after the traditionally quieter summer period. Things look particularly tough for permanent roles and it is telling that PageGroup is building up a cash buffer, with a material increase in its net cash balance quarter-on-quarter.

“In the UK, firms may be hedging their bets regarding jobs until after the Budget which could see increases in employers’ National Insurance and is likely to see enhancements to workers’ rights.”

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