Markets
Europe
The FTSE-100 finished yesterday's session 0.39% higher at 6,695.42, whilst the FTSE AIM All-Share index closed 0.34% better-off at 726.65. In continental Europe, markets ended in the red in a volatile trading session yesterday. Geopolitical tensions around the world and a fall in oil prices dampened investor sentiment. France's CAC 40 fell 0.3%, while Germany's DAX closed broadly flat.
Wall Street
Wall Street ended in the green, as investors cheered upbeat corporate earnings releases. Oil prices remained under pressure due to growing supply and a failed coup in Turkey. The S&P 500 advanced 0.2%, driven by gains in information technology and consumer discretionary stocks.
Asia
Equities are trading mixed, as investors remained cautious ahead of corporate earnings releases and the European Central Bank's policy meeting later this week. The Nikkei 225 rose 1.4%, supported by a weaker yen. The Hang Seng was trading 0.4% lower at 7:00 am.
Oil
Yesterday, WTI prices decreased 1.5% to US$45.24 per barrel, while Brent oil prices dropped 1.4% to US$46.96 per barrel.
Headlines
Retail footfall in UK drops sharply in June
As per the British Retail Consortium, retail footfall in the UK fell 2.8% y-o-y in June after rising 0.3% in May, marking the sharpest decline since February 2014. The significant decline in footfall is largely due to political and economic uncertainty during the month. Moreover, heavy rains and extreme weather conditions throughout the month aided the decline.
Company news
ARM Holdings (LON:ARM, 1,675.0p) - Hold
ARM Holdings reached an agreement on terms of all cash acquisition of the entire issued and to be issued capital of ARM Holdings by Japan's SoftBank. The consideration amount for the deal is £24.3bn. As per the terms of the acquisition, an ARM Holdings shareholder would receive 1,700 pence in cash for each share held. The price represents a 43.0% premium to the closing price of 1,189 pence per share on 15th July 2016 and a 41.1% premium to the company's all-time-high closing price of 1,205 pence per share on 16th March 2015. In addition, the shareholders registered at the close of business on 8th September 2016 would receive an interim dividend of 3.78 pence per share. The dividend would be paid on 10th October 2016. SoftBank plans to retain ARM Holdings' senior management team, brands, partnership-based business model and culture. The headquarters of ARM Holdings would remain in Cambridge. SoftBank also plans to double the employee headcount in the UK and increase the headcount of ARM Holdings outside the UK over the next five years. SoftBank would use its existing cash resources and cash drawn down from a term loan facility with Mizuho Bank, Ltd to fund the acquisition.
Our view: Beaufort regards this Recommended Offer from Softbank, who managed to take timely advantage of exceptional Yen strength versus Sterling, as the end-game for one of the UK's most successful technology stories of recent years. Appearing to have carefully engineered this all-cash take-over, with buy-in from both existing customer and regulator while also combining a pleasing sop for a sensitive UK government, suggests first class execution that is unlikely to challenge by other interested or envious peers. Accordingly, with little expected arbitrage now to go for, Beaufort downgrades its recommendation from Buy to Hold, suggesting investors might like to put their gains to better effect elsewhere in the UK market where multiple post-Brexit opportunities presently exist.
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AstraZeneca (LON:AZN, 4,527.0p) - Hold
AstraZeneca's Phase III AURA3 trial has met its primary endpoint, demonstrating superior progression-free survival (PFS) compared with standard platinum-based doublet chemotherapy. Furthermore, the objective response rate (ORR), disease control rate (DCR) and duration of response (DoR) achieved clinically meaningful improvement versus chemotherapy. The trial assessed the efficacy and safety of Tagrisso as a 2nd-line treatment in more than 400 patients with EGFR T790M mutation-positive, locally advanced or metastatic non-small cell lung cancer (NSCLC). AstraZeneca is evaluating AURA3 data, including an analysis of overall survival (OS). It would present its findings at an upcoming medical meeting.
Our view: The update mentioned above is a positive development for AstraZeneca. The results underpin Tagrisso as an alternative for EGFR T790M lung cancer patients. Tagrisso is one of the fastest development programmes, with the trial and approval processes ending in just over two-and-a-half years. It has received approval in the US, the EU, Japan, Canada, Switzerland, Israel and Mexico as the first-line treatment for patients with EGFR T790M mutation-positive advanced NSCLC. AstraZeneca plans to explore the potential of Tagrisso as a monotherapy and in combination in patients with lung cancer, including in adjuvant and locally advanced/ 1st-line EGFRm settings. AstraZeneca's new drug zirconium cyclosilicate (ZS-9) recently failed to get approval from the US FDA owing to high potassium levels. AstraZeneca paid US$2.7bn for ZS Pharma to gain access to the drug. Moreover, many of the company's drugs are in the development phase. AstraZeneca is facing challenges, with some of its key drugs approaching patent expiry. In view of the mixed outlook for the company, we maintain a Hold rating on the stock.
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Finsbury Food Group (LON:FIF, 114.50p) - Buy
Finsbury Food Group ('Finsbury Food'), the UK speciality bakery manufacturer of cake, bread and morning goods for the retail and foodservice channels, yesterday provided its pre-close trading update for the 53 weeks ended 2 July 2016. During the period, revenue advanced +24.8% to £319.7m against last year. In terms of like-for-like ('LFL') sales growth, Fletchers and Johnston's expanded by +5%, UK bakery division increased by +3% and overseas division (Group's 50% owned European business), up +25.7%. The Group's sale to the foodservice channel grew +5.3% on a LFL basis, amounted to 21% of total UK bakery sales revenues. Finsbury Food's CEO, John Duffy commented "This growth is underpinned by capital investment and our continued focus on innovation, maintaining our position as one of the UK's largest speciality bakery groups. More than ever we are well placed to continue our solid performance and drive growth". The Board expect to deliver profits in line with market expectations.
Our view: Finsbury Food provided good results for the full year, delivering pleasing growth across all divisions on a LFL basis. Though the pace was lower compared to exceptional rate seen in first half of the year, this was due primarily to the strength of the H2 2015 comparative. Outperforming its market, the Board was confident enough to confirm its full year profit will meet the market expectations, which had already been revised upward following the strong first half performance. Although the post-Brexit decline in consumer confidence has been widely reported, such spending intentions is unlikely to affect a supplier of consumer staples such as Finsbury Food. Importantly also, the Group's 50%-owned overseas division, Lightbody-Stretz Ltd, (FY2015: c.9% of Group's revenue) that supplies and distributes the Group's UK manufactured products and third party products to Europe, will be a natural beneficiary of Sterling depreciation. Beaufort retains its Buy recommendation on the shares.