Vodafone’s confirmation that it will merge its UK telecommunications business with Three UK gave an additional boost to the FTSE 100 index at midday on Wednesday, with market participants also increasingly confident of a pause in US interest rate hikes.
The large-cap index was up 34.84 points, or 0.5%, at 7,629.64. The FTSE 250 was up 7.67 points at 19,196.17. The AIM All-Share was down 1.18 points, or 0.2%, at 793.54, meanwhile.
The Cboe UK 100 was up 0.4% at 760.94, the Cboe UK 250 was flat at 16,718.88, and the Cboe Small Companies was up 0.4% at 13,331.61.
In London, Vodafone was among the top blue-chip performers at midday, rising 3.3%, after it confirmed a UK merger with CK Hutchison.
The companies will combine their UK telecommunications businesses, with Vodafone owning 51% and CK Hutchison owning 49% of the combined business.
CK Hutchison is a Hong Kong-based telecommunications, ports, infrastructure and retailing conglomerate. It owns the Three UK business.
Neither company will pay a cash price for the merger, instead, each will take on debt. Vodafone will take on £4.3 billion and Three UK £1.7 billion. The deal is expected to close before the end of 2024.
First it has to secure regulatory approval.
‘For the [UK Competition & Markets Authority], the equation is likely to come down to how much they take into account the consumer benefits from the promised acceleration to the roll out of 5G, gained through economies of scale versus the competitive risks from concentrating market power,’ commented Dan Ridsdale at research house Edison.
‘They will almost certainly consult Ofcom as part of the process who have already highlighted that Vodafone and Three’s poor return on capital under the current market structure presented a risk to future investment in the UK’s networks.’
Entain remained the FTSE 100’s worst performer at midday, down 9.2% at 1,199.50 pence, after a share placing.
The sports betting and gambling company raised about £600 million through a placing and retail offer to help fund its acquisition of STS, Poland’s leading sports-betting operator.
The placing price of £12.30 represented a 6.9% discount to Entain’s closing share price of £13.22 on Tuesday.
In the FTSE 250, Games Workshop was up 4.7%.
The miniature wargames maker and retailer said it expects to report an improved performance in its recently concluded financial year, thanks to its direct sales, as licensing revenue slipped.
Games Workshop expects core revenue in the financial year ended May 28 to be not less than £440 million. This would be 14% higher than £386.8 million the year before.
Pretax profit is expected to rise to at least £170 million, which would be at least an 8.3% improvement from £156.5 million a year before.
Aston Martin added 4.8% after Jefferies raised the luxury car manufacturer to ’hold’ from ’underperform’ and lifted its price target to 300p from 160p. The stock is currently trading at 292.17p.
Analysts at Jefferies said Aston Martin had ‘finally broken a cycle of discounted rights issues’ and is now ‘firmly in [mergers & acquisitions] territory.’
‘The valuation implied by [strategic investor] Geely paying 335p per share is quite generous for a company with much to prove operationally and a long succession of wealthy shareholders. However, the deal also provides support and possibly a floor for future transactions, be it another capital raise, a higher stake, or a full takeover,’ they said.
Chinese vehicle manufacturer Geely International raised its stake in Aston Martin to 17% in May by buying 42 million existing shares at 335p, mostly from Aston Martin Executive Chair Lawrence Stroll, who remains the company’s largest shareholder.
Elsewhere in London, Severfield jumped 9.5% after it said its annual profit and revenue grew by double-digit percentages, driven by increased activity.
The structural steel company’s pretax profit for the year ended March 25 climbed by 29% to £27.1 million from £21.0 million a year before.
Revenue for the year was £491.8 million, up 22% from £403.6 million a year prior. This was driven by increased activity from the Indian joint-venture, JSSL, which produced a record output of 100,000 tonnes.
On AIM, Aptamer more than tripled to 27.45p.
The biotechnology firm reported success in the development of Optimer binders to enable a lateral flow test for the early diagnosis of Alzheimer’s disease.
‘We are pleased to be able to support the team at Neuro-Bio with the development of Optimer binders to enable their revolutionary diagnostic for Alzheimer’s disease. Optimer binders have proven performance in lateral flow test formats and our success in delivering functional Optimer binders to Neuro-Bio’s biomarker facilitates further diagnostic development,’ said Interim Chief Executive Rob Quinn.
In European equities on Wednesday, the CAC 40 in Paris was up 0.8%, and the DAX 40 in Frankfurt was up 0.5%.
Germany’s DAX 40 set a new record high earlier in the day. The index climbed to 16,332.16 points, beating the previous record that had been set in May.
Stocks in New York were called largely higher on Wednesday, ahead of the Federal Reserve’s next interest rate decision.
The Dow Jones Industrial Average was called down 0.2%, while the S&P 500 index and the Nasdaq Composite were both seen 0.1% higher.
The Fed announces its latest interest rate decision at 1900 BST on Wednesday. A press conference with Chair Jerome Powell follows at 1930 BST.
Tuesday’s cooler-than-expected headline US inflation number boosted expectations that the Fed will hold interest rates steady on Wednesday.
Markets now see a 95% chance of rates staying where they are, according to the CME FedWatch Tool. Last week, markets saw just a 73% chance of this outcome.
Francesco Pesole at ING said that despite the ‘welcome developments’ in inflation, the Fed wants to see a 0.2% month-on-month or below CPI reading to feel ‘confident’ inflation will return to target.
Headline US inflation slowed to 0.1% in May from the month before, though month-on-month core inflation remained at 0.4%.
‘This is why we think today’s statement will include a quite explicit openness to further tightening in the future, which could be expressed via the wording ’future increases may be appropriate’,’ he said.
Ahead of the decision, the dollar was weaker against most major currencies.
The pound was quoted at $1.2648 at midday on Wednesday in London, higher compared to $1.2609 at the close on Tuesday. The euro stood at $1.0805, higher against $1.0795. Against the yen, the dollar was trading at JP¥140.01, a touch lower compared to JP¥140.05.
Pesole said that he thinks the signalling another hike in the 2023 projections would trigger a ‘quite substantial’ dollar rally, as markets see the July meeting as the ‘most likely’ date for the next rate increase.
‘We don’t see negative implications for the dollar in our baseline scenario (hawkish messaging, unchanged median dot plot), as the endorsement of the market’s hawkish repricing of Fed expectations should keep the recent bullish narrative for the dollar alive for a bit longer: that is until data takes a decisive turn for the worse in the US,’ he said.
Brent oil was quoted at $75.30 a barrel at midday in London on Wednesday, up from $73.98 late Tuesday. Gold was quoted at $1,948.67 an ounce, higher against $1,944.33.
Still to come in Wednesday’s economic calendar, US producer price figures are released at 1330 BST.
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