Markets
Europe
The FTSE-100 finished yesterday's session 0.23% higher at 6,809.13, whilst the FTSE AIM All-Share index closed 0.54% better-off at 772.56. In continental Europe, markets ended in the green, driven by gains in banking and financial stocks. Oil prices rallied after speculations that OPEC would try to control oil output. Germany's DAX and France's CAC 40 rose 0.6% and 0.1%, respectively.
Wall Street
Wall Street ended marginally lower, as decline in healthcare stocks offset a rally in oil prices. Investors await key retail sales data due later this week. The S&P 500 dropped 0.1% in yesterday's trading session.
Asia
Equities are trading mixed, as investors digested a fall in consumer inflation in China. Investors cheered a rally in commodity stocks, fuelled by an improvement in oil prices. The Nikkei 225 added 0.7%, whereas the Hang Seng was trading 0.1% down at 7:00 am.
Oil
Yesterday, WTI prices increased 2.9% to US$43.02 per barrel, while Brent oil prices surged 2.5% to US$45.39 per barrel.
Headlines
Like-for-like sales in UK increase in July
As per the British Retail Consortium (BRC), the UK's like-for-like sales rose 1.1% y-o-y in July after a 0.5% fall in June, higher than the expectation of a 0.7% decline. The gain in sales was largely led by warm weather conditions and heavy discounts offered by retailers.
Company news
Melrose Industries (LON:MRO, 786.0p) - Buy
Melrose Industries informed the 'window shop period' regarding its takeover proposal for Nortek Inc expired on 6th August 2016 and Nortek failed to receive a superior proposal. In addition, all anti-trust conditions in relation to the acquisition have already been satisfied, and all shareholder resolutions regarding the acquisition and fully underwritten Rights Issue were passed unanimously on 25th July 2016. Meanwhile, the company is undertaking all the essential steps to implement the Rights Issue with the distribution of the provisional allotment letters. The acquisition is anticipated to be completed by 31st August 2016.
Our view: The update regarding the completion of acquisition by 31st August 2016 bodes well for Melrose Industries. Nortek is a high-quality manufacturing company, with over 90% of its turnover in North America and product penetration into 80% of US households. Nortek serves attractive end markets at good points in their cycle, with strong brands and market positions. Nonetheless, there remains strong potential for further improvement under Melrose Industries' guidance. Melrose Industries' ability to apply its industrial experience and investment expertise, along with liberating Nortek from its current capital structure, would transform the prospects of the business. Since its inception, Melrose Industries has created and returned over £2.8bn to its shareholders, and we believe that Nortek presents an excellent opportunity to build substantially on that track record. Thus, in view of the favourable prospects, we maintain a Buy rating on the stock.
Smith & Nephew (LON:SN., 1,266.0p) - Hold
Smith & Nephew announced the completion of the planned divestiture of its Gynaecology business to Medtronic for US$350m. As a result, the company's shareholders are expected to benefit directly from the US$300m share buyback programme, which is also the maximum pecuniary amount allocated to the programme. The maximum number of shares that would be purchased is estimated to be 18.3 million based on the prevailing share price and GBP/USD exchange rate. The adjusted earnings per share (EPSA) for 2017 is likely to be broadly neutral after the buyback programme and reduce by less than 1.0¢ in 2016. The buyback programme aims to reduce the company's share capital, and is expected to end no later than 31st March 2017.
Our view: The planned sale of Smith & Nephew's Gynaecology business demonstrates the company's disciplined strategic approach to capital deployment. In addition, its strong core businesses and growing pipeline of innovative products, boosted by the recent acquisition of the robotics business Blue Belt Technologies, bolsters the company's long-term prospects. However, Smith & Nephew continues to face some challenges in China and the Gulf countries, even as the business in emerging markets showed improvement according to its latest result update. Thus, in view of the mixed outlook, we retain our Hold rating on the stock.
Economic news
Germany industrial production
Industrial production in Germany increased 0.8% m-o-m on a seasonally adjusted basis in June, after a 0.9% fall in May, as per data published by Destatis yesterday. Economists had expected production to grow 0.7% for the month. On a y-o-y basis, industrial production rose 0.5% in June, after a 0.4% drop in May.