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The FTSE 100 started another day in the red this week despite Royal Mail (RMG) delivering shareholders a £400m payday, as investors continue to worry about interest rate rises.
The index slipped 0.15%, or 10 points, to trade at 7,280, with blue chips undercut by a tick-up in the pound. Sterling strengthened 0.1% to trade at $1.349 against the dollar on expectations that the Bank of England will increase rates from the historic low of 0.1% in December after inflation spiked last month.
‘The FTSE 100 continues to drift having fallen just short in its efforts to reclaim pre-pandemic levels,’ said AJ Bell analyst Russ Mould.
‘Mounting inflation has helped drag the index back as it raises the likelihood of a pre-Christmas rate rise, thereby boosting the pound. When some 70% of its constituents’ earnings are derived from overseas, strength in sterling isn’t that helpful.’
GlaxoSmithKline (GSK) was the weakest performer, shedding 2.2% to trade at £15.24 despite the pharmaceutical giant winning a $1bn contract to supply Covid-19 antibody treatments to the US government.
Oil majors Royal Dutch Shell (RDSA) and BP (BP) fell 1.8% to £16.62 and 1.5% to 336p respectively, as oil fell below $80 a barrel as more balanced supply eases pressure on prices.
The falls were partially offset by Royal Mail. It climbed 5.1% to 460p after confirming a £200m special dividend and £200m share buyback programme following a jump in half-year profits thanks to a 7% rise in revenue to £6bn.
Today’s rise takes the stock’s total one-year advance to 175% from 286p from last November, good news for Temple Bar (TMPL) investment trust and other investors who backed Royal Mail as a pandemic winner.
‘The pace of Royal Mail’s turnaround has hugely impressed, leaving the group in very real danger of becoming an attractive business,’ said Hargreaves Lansdown analyst Nicholas Hyett.
‘Year-on-year revenue growth will get more challenging as the group laps Christmas in lockdown, and inflation could also offset planned cost savings. If Royal Mail can weather those headwinds the future looks brighter than it has in years.’
The stronger pound boosted the domestically focused FTSE 250, which advanced 0.2%, or 51 points, to 23,485.
Rank (RNK) led the mid-caps higher, gaining 3.2% to trade at 155p, after the gambling group’s chief financial officer stepped down.
Playtech (PTEC) moved 2.7% higher to trade at 761p as a bidding war intensified after the gaming software group received a £3bn counterbid from a consortium of investors that includes former Formula One team owner Eddie Jordan.
The consortium is believed to have made a preliminary approach for the group, provoking a takeover battle with Mexican gambling business Caliente, which is already in talks with Playtech over a deal to take their joint venture public.
Rotork (RTK) slid 7.4% to 344p following a trading update from the engineering group. Although the company is going into 2022 with a record order book, investors were spooked by comments about supply chain pressures potentially squeezing second-half revenue.
3IN up on subsea investment
3i Infrastructure (3IN), a winner in Citywire’s Investment Trust Awards last week, gained 1.1%, or 3.5p, to 342p after buying global data communications service provider Global Cloud Xchange for $512m. The company owns one of the world’s largest private subsea fibre optic networks.
In other investment trust news, NB Private Private Equity (NBPE) rose 1.9%, or 33.4p, to £18.38 from a 13% discount after posting a 2.4% increase in net asset value (NAV) to $30.44 (£22.21) last month, helped by the flotation in Norway of Autostore. The £844m trust’s NAV has grown 39% this year, its best performance in six years.
Schroder UK Public Private (SUPP), the former Woodford Patient Capital Trust, slipped 3.4%, or 1.1p, to 32.6p from a 27% discount after ploughing $7m (£5.2m) into a $64m fund raising by Attest Technologies, a market research platform used by the likes of Microsoft, Santander, Boots owner Walgreens and money transfer company Wise. This is the trust’s third new private equity investment since Schroders replaced Neil Woodford nearly two years ago.
Caledonia Investments (CLDN), the £2.1bn global multi-asset fund backed by the Cayzer shipping family, shed 1.2%, or 45p, to £38.05 after a downgrade by Stifel. Cutting his rating to ‘neutral’ from ‘positive’, analyst Anthony Stern explained he was cautious returns could slow after a 36% NAV rise in the past 12 months, its strongest performance in over a decade.
‘Having traded for much of the year at a discount of close to 25%, the shares now trade at a 19% discount, which is in line with their three-year average discount range,’ he said.
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