M&A Boosts The FTSE 100; Europe Lags

In a big week for central banks, early European trading is set to be dominated by M&A activity this morning after Takeaway com (AS:TKWY) announced that it was offering to buy Just Eat (LON:JE) for 731p a share, a 16% premium on Friday’s closing price.

In what is a highly competitive industry, this move by Takeaway.com, who are based in the Netherlands, marks a continuation of the consolidation we’ve seen in the past year or so in an industry that has seen competition increase sharply in the last few years, as companies like Uber (NYSE:UBER) Eats and Deliveroo erode the first mover advantage of a business model that is easily replicable.

In 2017 we saw Just Eat gobble up UK competitor Hungry House for £200m, while earlier this year Amazon (NASDAQ:AMZN) took a $575m stake in online rival Deliveroo, a statement of intent in the UK market that saw Just Eat’s share price drop sharply in May.

Takeaway.com already has a decent geographical presence across Europe, recently acquiring the German business of Delivery Hero, along with a business in Vietnam, and would signal a determination for the business to deliver economies of scale in regions where it currently has no presence, namely the UK, as well as Australia, Canada, New Zealand, Brazil and Mexico. This would allow the business to better compete against the likes of Amazon who can afford to throw money at the sector.

The London Stock Exchange Group (LON:LSE) share price has risen to a record high after announcing it is in talks to buy data analytics company Refinitiv for the sum of $27bn, the company which runs the Eikon and Tradeweb information platforms. This merger if it gets the green light from regulators in the US and Europe would make the combined business a market leader in data and information, putting it on a par with Bloomberg.

In other company news Ryanair (LON:RYA) shares have pushed higher after the company reported a sharp drop in revenues for the latest quarter. The company blamed having to cut fares as well as higher fuel costs for the squeeze on its margins, even though it was able to increase passenger numbers.

Ancillary revenues also helped improve revenues, which appears to have given management the confidence to reiterate its full year guidance of between €750m to €950m.

Sports Direct (LON:SPD) share price has hit an eight year low this morning as investors digest the events at the end of last week, when the company finally got its results out of the door after an over two week wait, and then a 12 hour delay. The sticking point appears to have been a €600m tax demand from Belgian authorities, which the company is contesting, while it appears that the acquisition of House of Fraser appears to have been more expensive than anticipated.

In a somewhat surreal press conference CEO Mike Ashley took aim at House of Fraser’s previous management, the audit industry, Debenhams management, while bemoaning the difficult retail environment. The departure of CFO Jon Kempster would also appear to point to some tensions at boardroom level, coming so soon after the departure of head of retail Karen Byers at the beginning of July.

The pound has continued to come under pressure hitting a new two year low, against the US dollar, as the noise around the possibility of a no deal Brexit continues to get louder and louder. It would appear that government policy around the prospect of leaving without a deal has shifted markedly under the leadership of new Prime Minister Johnson.

This appears to be a deliberate high stakes policy to either force a solution from the EU, with respect to the backstop, as well as forcing MPs into a position where they would have to revoke article 50 to prevent a crash out. In so doing this would likely force an election which could see a backlash that favours the “leave” side.

US markets look set to open slightly lower today, after last week’s record peak in the S&P500, with the main focus set to be on another big week for earnings, as well as Wednesday’s Federal Reserve rate decision.

On the earnings front we’ll get to see the latest Q2 numbers from Beyond Meat Inc (NASDAQ:BYND), whose share price has performed in a manner that is beyond reason. In a move that suggests it is an accident waiting to happen, the company has a valuation of $14bn as the share price has surged from $25 a share to be trading north of $230.

In Q1 total revenues came in at $40.2m, which helped push gross profits to $10.8m, a rise of 424% from a year ago. While this is encouraging it doesn’t disguise the fact that the company still operates at a loss and that total revenues for the year are likely to come in just below $250m. At some point this bubble will burst with expectations for Q2 to be a loss of $0.084c a share, when the numbers are released after the closing bell.

Dow Jones is expected to open 32 points lower at 27,160

S&P500 is expected to open 3 points lower at 3,022

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Original Post