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Today's markets: Downbeat opening, UK house prices finally peaking, Ultra confirms bid, BHP looks to exit oil and gas

Shares in London were weak in morning trading
Today's markets: Downbeat opening, UK house prices finally peaking, Ultra confirms bid, BHP looks to exit oil and gas

 

  • Demand for larger houses reverses as tax breaks taper
  • Ultra is the latest UK company to be consumer by M&A surge

Positive sentiment lacking

Equities in London are in the red in opening trading today as a confluence of factors adds up to dampen investor sentiment. Weak Chinese economic data and he spread of the Delta variant in Asia added up to a weak overnight showing from markets there and with the addition of the turmoil in Afghanistan over the weekend plus some iffy consumer sentiment data from the US at the back end of last week US markets are expected to open in the red later today too. Read Neil Wilson’s market outlook for more. 

House prices stall, finally

The long surge northwards in UK house prices may be coming to an end. An index from online estate agency Rightmove (RMV) showed that the price of new houses coming to the market has dipped by 0.3 per cent so far in August. The summer is traditionally a quieter time for the housing market but until now there had been little sign of house price growth abating but it appears that the end of the stamp duty holiday for houses priced above £500,000 and the impending removal of the same tax break for houses over £250,000 may finally be having an effect. Indeed, Rightmove said that the dip in the index was caused primarily by a 0.8 per cent fall in the four bedroom-plus sector with two bedroom homes and three-to-four beds still showing rises of 0.6 per cent and 0.3 per cent respectively. 

Read why our resident economist Chris Dillow believes that house prices do not equate to wealth. 

Ultra promises to maintain UK presence after Cobham buyout

Cobham has stuck with its £35-a-share offer for defence company Ultra Electronics (ULE), plus payment of the 16.2p per share interim dividend announced last month. Ultra’s board said US-owned Cobham would commit to “protecting existing and creating new UK manufacturing and engineering jobs”, and keep a UK headquarters. Cobham is keen to keep the government onside so the deal can go through. The Financial Times reported last month business secretary Kwasi Kwarteng had taken an “active interest” in the deal. 

The concrete offer, filed four days before the 20 August deadline, is an improvement on the initial £28 offer in June from Cobham, the former London-listed defence company now owned by private equity firm Advent International. 

Read Nilushi Karunaratne’s initial analysis of the Cobham offer and what it means for shareholders. 

The company’s share price was up 5 per cent in early trading, to 3,310p. It has traded below the £35 level since the higher offer was announced last month. 

The private equity-led bid for Ultra is the latest in a string of takeover moves in the UK market this year, indeed M&A activity has been at its highest for 14 years in the opening seven months of 2021 although, rather ominously, that period was just before the financial crisis. The UK aerospace sector has been an area of intense activity with Meggitt (MGGT) also in the midst of potential bid battle between US firms Parker Hannifin and TransDigm. The former has agreed a deal worth £6.3bn but TransDigm indicated last week that it could be prepared to trump that. 

For more on private equity activity, how to follow their lead and how to profit from their expertise, read this week’s in depth feature - What private equity wants. 

BHP studying petroleum demerger

BHP (BHP) shareholders could find themselves even more exposed to oil and gas under a plan by the miner to hive off its petroleum business to major Australian player Woodside Petroleum (AU:WPL). The deal, first reported in the Australian Financial Review, would see Woodside shares handed to BHP investors. 

The mining giant has oil and gas assets in the Gulf of Mexico, Trinidad and Tobago and Australia. It previously sold off its onshore US assets to BP for $10.5bn in 2018. BHP said it had “initiated a strategic review of our petroleum business to re-assess its position and long-term strategic fit in the BHP portfolio”, with one option a “merger” with Woodside. The oil and gas company’s shares were down 4.6 per cent on the news on the ASX. Bernstein analyst Bob Brackett said on pure environmental groups a “responsible run-down of fossil fuel assets” was the way to go, rather than a spinoff that could see production expanded.  AH