China woes hit FTSE 100, Ashtead to shift main stock listing to the US, Moonpig setback, Games Workshop agrees Amazon deal and reports link Cadbury-owner to Hershey’s

“The FTSE 100 was in the red amid concerns that China’s economic stimulus measures might not have a long-lasting effect,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“That triggered a sell-off in miners as investors worried that the Asian superpower wouldn’t have strong enough economic activity to drive a big increase in commodities demand.

“Chinese exports grew at a slower pace in November versus October and imports shrank. That doesn’t install much confidence about Beijing’s efforts to get the country back on top. The prospect of higher tariffs on Chinese goods exported to the US once Donald Trump is back in the White House also cast a dark cloud on the near-term outlook, making investors nervous about the region.

“Centrica reassured the market about trading and extended its share buyback programme by £300 million. A steady-as-she-goes performance from Centrica is arguably a good outcome given how the utilities sector has tested investors’ patience over the past few years, particularly water operators.

“Ironically, Severn Trent fell 1.3% after yet another blow to the water sector. BBC Panorama alleged that Severn Trent used an accounting trick to artificially inflate its balance sheet and investors didn’t welcome the negative publicity.”

Ashtead

“It was always a question of ‘when’ not ‘if’ Ashtead would move its main stock listing to the US. The bulk of its business is carried out in North America and that’s where its management team are based.

“There have been rumblings for a while that a US primary listing was being considered so that remuneration packages could be aligned with US-listed companies – i.e., justification to pay the top brass big money.

“The company was criticised by proxy advisers in the summer over a $14 million proposed pay deal for chief executive Brendan Horgan which was deemed ‘excessive’. That might be the case for UK-listed companies, but not US-listed ones.

“There is also the Trump factor to consider. He favours American companies doing things for American people. Ashtead is nearly the perfect example but moving its listing to New York is effectively another tick in the box in its favour. The next logical move would be to sell its remaining UK operations – they are tiny compared to the US business and offloading them would complete the circle for the pivot to all things Stateside.

“Companies have typically shifted their main stock listing from the UK to the US in search of a higher valuation. That doesn’t apply to Ashtead as it already trades on a richer valuation versus its closest listed rival. Ashtead trades on 18.6 times the next 12 months’ earnings versus United Rentals on 18.5 times.

“Ashtead’s decision is another blow to the London Stock Exchange as the latter battles a shrinking market. However, Ashtead’s impending listing switch was inevitable so in a way it’s better to happen now so the LSE can start the New Year fresh with a sharp focus on rebuilding the UK’s market reputation.

“The listing news has coincided with a profit warning from Ashtead due to weak US local commercial construction markets. Profit warnings from Ashtead aren’t common but the latest one doesn’t imply any reason to panic.”

Moonpig

“It feels as if Christmas cards have been losing popularity in recent years as people can’t be bothered to send things by post unless they’re parcels. With the price of a first-class stamp now costing more than many Christmas cards, there are even greater headwinds for greetings card companies like Moonpig. It’s having to work hard to keep growing and diversifying into other areas like experiences hasn’t gone smoothly.

“A lot of people are still watching their pennies and the higher-priced experiences like getting people to sign up for a day at the racetrack or a spa treatment are hard sells in the current economic environment. Moonpig has had to moderate its growth expectations for this part of its business and that’s caused the share price to fall out of bed.”

Games Workshop

“With the deadline to agree creative terms with Amazon for content based on its Warhammer 40,000 IP fast approaching, Games Workshop has finally confirmed a deal.

“Amazon will now have exclusive rights to pursue TV and film adaptations – with an option to licence equivalent rights in the broader Warhammer Fantasy universe after any initial productions have been released. This is positive news for the company on two fronts.

“First, it should offer a stream of licensing revenue with very little additional cost borne by the company. Second, it is a showcase for Games Workshop and its products which could win over new fans to its tabletop miniature war games.

“That’s not to say there aren’t risks attached. There have been plenty of examples of TV and film production based on content with devoted fanbases disappointing devotees in the past. Games Workshop’s key strength is its army of enthusiastic hobbyists and it would be a negative if it did anything to alienate them.

“It’s also worth pointing out that any release is not likely to see the light of day for several years given the timeframes involved in producing TV and film content.”

Cadbury / Hershey

“The prospect of Cadbury’s owner Mondelez gobbling up rival chocolate maker Hershey’s seems a neat fit.

“After all, this wouldn’t be the first time Mondelez has made a pitch for Hershey’s since its controversial capture of Cadbury in 2010 – with an £18 billion bid failing in 2016.

“Investors will hope putting the two together doesn’t create a sticky mess but instead enables any combined entity to dominate the confectionary space. To a British taste, if they can just make American chocolate halfway palatable it would be a good start.

“One area being exploited by Mondelez is mixing its brands like Oreo and Cadbury’s chocolate and releasing them in different formats such as ice cream and spreads. This could easily be replicated with Hershey’s should the two companies come together.

“Mondelez would also hope to deliver significant cost savings as part of any deal and this might help with weathering continued upward pressure on cocoa prices. Following hot on the heels of news of a tie-up between advertising giants Omnicom and Interpublic, this latest speculation around a gigantic merger will add to the perception of a Trump effect as the author of The Art of the Deal is seen as being positively inclined towards M&A.”

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