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European markets rebound as investors fish for bargains

by LLB Reporter
9th Mar 22 12:27 pm

Markets across Europe saw strong gains on Wednesday following decisions by the UK, US and EU to ban or curb Russian oil and gas imports, thereby putting further financial pressure on Russia.

After a strong run for commodity producers on the market, names like Rio Tinto and Glencore slipped back on the FTSE 100, with investors instead fishing for bargains among more beaten-up consumer-facing stocks including International Consolidated Airlines and Primark Associated British Foods.

“In Germany, the DAX jumped 3.8%, led by another consumer-facing stock, Adidas, as well as Deutsche Post. Adidas’ shares were helped by expectations of a sales recovery in China and guidance for improved operating margins, but it set the tone for many companies to come by quantifying the expected hit from halting business in Russia, which in its case is up to €250 million,” says Russ Mould, investment director at AJ Bell.

“After Coca-Cola and McDonald’s caved into public pressure to pause business in Russia, Mothercare has followed suit. While its UK business is now limited to online-only, it still has a big overseas presence run by franchisees and Russia accounts for about a fifth to a quarter of its sales. Every month the Russian operations are paused will cost the group half a million pounds in lost profit.

“There have been concerns in the City of London that M&A deals would dry up while markets are extremely choppy, just as we recently saw with the very short-lived attempt by Spectris to buy Oxford Instruments. However, the M&A juggernaut keeps on trucking as evidenced by a counterbid for transport group Stagecoach from infrastructure investor DWS.

“National Express’ takeover offer for Stagecoach has now been trumped by a considerable margin, which explains why the target’s board has switched allegiance to the new suitor.

“With share prices down across so many sectors, someone looking to acquire could find more attraction valuations in the current market so opportunistic bids could become a theme over the coming months.

“The key challenge will be convincing shareholders to accept a bid as there would be a strong argument to suggest that current share price weakness may only be short-lived.”

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