- FTSE 100 opens higher as confidence rises following big tech rebound.
- VW and US electric vehicle maker Rivian announce a tie up.
- Microsoft shakes off the latest regulatory probe findings.
- Sales spark for electrical retailer AO World.
- EP Group publishes formal offer for Royal Mail parent company.
Susannah Streeter head of money and markets, Hargreaves Lansdown:
‘’An uptick in confidence has sent the FTSE 100 higher, after US tech staged a rebound, particularly the chipmaker Nvidia. Fears of a big imminent market wobble are now receding. However, there are still concerns hanging around about stubborn inflation, with a hotter than expected reading in Australia sending the ASX 200 in Sydney lower. Brent Crude has edged up slightly above $85 a barrel, amid continued geo-political concerns, even though there was an uptick in US crude stockpiles. This has raised questions about demand for energy across the vast economy given expectations higher interest rates are going to linger for longer.
Volkswagen is diversifying and using its financial firepower to build up its position in the US EV market through its new tie-up with Rivian. It’s investing up to $5 billion in the electric vehicle maker, which is still loss-making but has been restructuring and cutting costs to become more efficient, and this strategy has shown signs of progress. Rivian shares soared on the news, as it’s a big vote of confidence in the EV maker’s prospects. For VW it’s a way of tapping into EV demand in the world’s largest economy, which has been slower than hoped but is expected to accelerate. It gives it access, in particular, to a slice of the pick-up truck market and will boost its share of the SUV business. But it’s Rivian’s software which may be the bigger draw, with plans to integrate it into VW’s off-road EV brand, Scout. Its own software division, Cariad, has hit a series of bumps in the road, from budgetary overspend to technological difficulties with the EV architecture, and it’s hoped this new partnership will help speed up software innovation for VW and Rivian. Joining forces in this way may also help lower the cost-per-vehicles and bolster defences against the growing might of Chinese EV makers.
Microsoft appears to be shaking off concerns about a fresh regulatory hurdle it’ll have to jump after the EU accused it of anti-competitive practices surrounding its Teams software. The European Commission’s preliminary view of a two-year probe into practices is that it breached anti-trust rules by tying together Teams with its other apps and that efforts made to partially ‘unbundle’ Teams were not sufficient. It’s likely that this will result in further tweaks to its Teams offering but is not perturbing investors. Microsoft is now far more about cloud computing and AI than it is Teams, Excel, Word and that’s what’s been big driver of its valuation.
White goods electrical supplier AO World has seen a spark in sales with annual profit of £34 million beating forecasts. It’s also maintained its medium-term outlook and says its confident it will see double digit revenue growth in 2025. It’s been a volatile ride for the company and its shareholders over the past few years, after lockdowns saw demand surge for electrical goods and then pull back as it became clear that many customers had simply brought forward purchases. It’s also been hit by the cost-of-living crisis with shoppers spending more cautiously. It’s now back at a more even keel, with more promising growth prospects ahead, helped by its razor -sharp focus on keeping high levels of customer satisfaction, particularly through its one-stop delivery and installation services. It’ll be very much reliant on the recovery in UK economic growth and consumer confidence.
EP Group, owned by the billionaire Daniel Kretinksy, known as the Czech Sphinx, has published its formal offer for Royal Mail parent, IDS which is being distributed to shareholders. It includes a plan to buy the shares of former and current Royal Mail staff, who collectively own around 5.5% of the company. The takeover of IDS comes as the company appears to be on more stable ground after losing its footing amid waves of strikes, volatile parcel volumes, declining letters and difficulties in bringing in the transformation needed. But there’s no denying the challenges it still faces in the UK and accelerated modernisation is part of EP Group’s strategy for the company. Regulatory approval could be a tough hurdle, given how important Royal Mail is to the UK economy and the Labour party has vowed to ‘robustly scrutinise’ the takeover’. On the one hand, Mr Kretinsky’s EP Group wants to buy out existing shareholders among staff, but at the same time appears to have left the door open to giving staff ‘a stake in the business’ following discussions with unions. It looks likely that this would be in the form of a greater ‘governance role for worker representatives. In the Czech Republic, employees have a third of the seats on supervisory boards of largely privately owned companies, following a change in the law in 2017. Given his experience owning a raft of Czech companies, it’s likely Mr Kretinsky would be at ease with greater employee representation. If this succeeds in getting unions on side, it could bolster political support.”
