Must read: stocks rise across Europe, Ten Entertainment takeover, TUI  

GLOBAL MARKETS

European markets have opened higher with the FTSE 100 breaking above resistance at 7,500. British American Tobacco (LSE:BATS) has plunged around 8%, stemming an even steeper gain for the UK blue chip index. Meanwhile, Ocado Group (LSE:OCDO), Weir Group (LSE:WEIR) and Anglo American (LSE:AAL) are the top gainers on the FTSE 100 this morning. 

Risk-on sentiment is driving price action this morning amid growing expectations that the European Central Bank (ECB) could cut rates early next year. Markets are pricing in an almost 90% chance of a cut from the ECB in the first quarter of 2024. Traders are fully pricing in 150 basis points of rate cuts next year. 

However, a new poll of economists by the Financial Times revealed that two-thirds of respondents believe the Federal Reserve will refrain from cutting rates until the third quarter of next year. 

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Overnight, Australia’s second quarter GDP hit 0.2%, below expectations for a reading of 0.4%.

Markets await the Bank of England’s financial stability report at 10:30am with a speech from Governor Andrew Bailey at 11am. 

TEN ENTERTAINMENT 

Ten Entertainment Group (LSE:TEG) will be bought by US private equity firm Trive Capital for £287 million, representing a 33% premium to Tuesday’s closing price of 310p. Reflecting this, shares in the bowling operator have soared by over 31% this morning. 

TEG noted that its shares have traded at a discounted valuation multiple to peers and that the market for its shares is relatively illiquid, providing a rationale for leaving the public markets. Plus TEG is dealing with a ‘highly unstable national and international political outlook together with a volatile economic backdrop’ and ‘significant inflation in certain input costs’. 

After Mars’ takeover of Hotel Chocolat Group (LSE:HOTC) and now Trive’s acquisition of TEG, there could be more international buyers set to swoop on London-listed stocks languishing at depressed valuations in the months ahead. With UK stocks underperforming the US and Europe, London hosts several possible takeover targets for deep pocketed international PE firms or rivals looking to expand in the UK via M&A. Small-to-mid sized UK companies rather than FTSE 100 heavyweights are more likely to be realistic takeover targets.

TUI 

TUI AG (LSE:TUI) expects operating profit to jump by at least 25% this year and revenue to increase by at least 10%. It reported strong full-year financial results with underlying operating profit more than doubling to €977 million on revenues of €20.7 billion. However, it warned about the current macroeconomic and geopolitical uncertainties particularly in the Middle East. 

After the painful pandemic period, the travel industry continues to enjoy the release of pent-up demand post Covid, with individuals and families prioritising their summer holidays over other spending even in the face of the cost-of-living crisis. However, with a rising risk of recession in the UK, Germany and elsewhere, there are worries that demand may have peaked with a slowdown in travel spending particularly over the quieter winter months. 

Europe’s largest travel operator is considering delisting from the London Stock Exchange to focus on its Frankfurt listing instead and centralise liquidity. No decision has been made yet, but it could be discussed further at its annual meeting in February. This would be a major blow to the LSE which has been grappling with an exodus of companies as well as the weak performance for London-listed stocks. 

Shares in TUI are trading sharply higher today. But even after today’s jump, the stock is still down by over 20% year-to-date, reflecting investor concern about its giant pile of debt and its discounted rights issue earlier in the year aimed at paying those debts off. Its year-end net debt stands at €2.1 billion, although this is a considerable €1.3 billion less than the previous year.