Must read weekly preview: FTSE 100 reshuffle, Bunzl, M&G, US jobs report

FTSE 100 reshuffle

Richard Hunter, Head of Markets, interactive investor says, “The stock Exchange will announce the result of its latest FTSE 100 reshuffle next week, with prices taken after the close on Tuesday 1 September and announced after the close on Wednesday 2 September, with the changes effective from Monday 21 September. As things currently stand, easyJet (LSE:EZJ) and Ithaca Energy  Ordinary Share (LSE:ITH) will be promoted to the premier index, with Entain (LSE:ENT) and Persimmon (LSE:PSN) moving in the other direction to the FTSE 250.

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For easyJet, it will be a last hurrah. The company has agreed to a £5.7 billion takeover by Apollo Global, with the deal expected to complete in the first quarter of next year. The company, which has flitted in and out of the premier index during its history will at least be ending on a high.

Less well known is Ithaca Energy, a British oil and gas company which operates in the North Sea. A subsidiary of Israeli Delek Group, the company has seen its shares rise by 64% so far this year since its growth pipeline includes a 20% interest in the Rosebank field, which is subject to regulatory approval for first oil in the first half of 2027. Improved guidance and a generous 9.7% dividend yield add to the investment case.

Entain shares have fallen by 30% this year, where its joint venture with MGM Resorts of the US – an entity called BetMGM – has failed to live up to expectations. Although the longer-term prospects remain promising in an estimated addressable market of $35 billion of revenue,  the estimated $500 million of adjusted earnings has now been pushed back to at least 2027. In addition, the ever-present threat of regulation has seen the stock fall out of favour with investors.

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Persimmon is in the midst of a housing sector which is fighting fires on any number of fronts. Uncertainty leading up to the October Budget, mortgage availability and affordability concerns, slowing construction activity and pressures arising from increases to the likes of National Insurance and stamp duty are meaningful headwinds. While for many investors a sustained recovery for the group is a matter of when and not if, the shares have fallen by 12% this year and will likely relinquish their place at the top table.”

Bunzl HY – Tuesday 1 September

Richard says, “Bunzl (LSE:BNZL) has been navigating choppy waters, but the latest trading update in June calmed some investor nerves. This followed the full-year results in March which steadied the ship somewhat, after a savage share price reaction to the profit warning last year left a sour taste in the mouth for investors. A subsequent trading statement and then half-year numbers in August stemmed further declines, and a relief rally has seen the shares rise by 35% in the year so far.

The group’s largest market in North America has been at the eye of the storm, with a combination of sales weakness, product price deflation and costs following the rollout of its own branded offering led to investors heading for the exit. That being said, Bunzl recognised that the unit needed some attention and now maintains that most of the current volume growth is coming from North America and in particular the distribution business, which was bolstered by some new contract wins at the end of last year.

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There have also been some questions raised on Bunzl’s bolt-on acquisition policy which has served the group well over a number of years and to which the company remains committed. Indeed, in April Bunzl added Australian distributor Scientifix Group to its portfolio, which is expected to add revenue of £9 million over the year and which adds to eight acquisitions made last year for a consideration of £132 million.

Bunzl has upgraded its outlook for the year which should provide some solace and investors will be keen to hear any updates. As things currently stand, for the full-year, operating margin is still set to decline modestly as previously guided, but the group is expecting good growth in adjusted operating profit. In the background, there is an additional factor at play. Activist hedge fund Elliott Investment Management now has a near 5% stake and is reportedly pushing for change, most notably through a resumption of the share buyback programme and a review of the North American business which could conceivably result in a sale of the unit if agreed.”

M&G HY – Thursday 3 September

Richard says, “M&G  Ordinary Shares (LSE:MNG)’s first-quarter update in May revealed a “strong” start to the year, with £371 billion of Assets Under Management up 10% year-on-year, and with £600 million of net inflows to the open business, comprising £700 million in Asset Management and outflows of £100 million in the Life business.

Spun out of Prudential in 2019, there are unsurprising similarities between the two businesses to this day. Large addressable markets, changing savings trends as part of retirement planning and a strong balance sheet each provide firm springboards for prospects.

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Indeed, the group has been seeking to simplify its business and reduce debt levels, while a dividend yield of 5.9% is punchy by any standards.

The shares have risen by 20% in the year so far with the circular relationship between Asset Management of a large part of the insurance business enabling a certain visibility of earnings over the longer term. In addition, the partnership with Dai-ichi Life of Japan will see M&G become Dai-ichi’s preferred asset management partner in Europe and is expected to generate at least $6 billion of new business flows into M&G funds over the next five years, which should provide additional visibility to profits. Updates on new business flows could be core in deciding whether the interim results are seen as a success.”

US jobs report – Friday 4 September

Victoria Scholar, Head of Investment, interactive investor says, “Friday brings the latest US non-farm payrolls report for August from the US Bureau of Labor Statistics.  

Last month, the labour market showed signs of weakening, with the US economy unexpectedly losing 23,000 jobs in July while June’s gain was also revised down by 20,000. The unemployment rate fell to 4.1% in July from 4.2% in June. There were seasonality issues at play – the timing of the school holidays pushed down state government education employment and the end of the World Cup had a negative effect. Healthcare however was a pocket of outperformance with 22,000 jobs added in the sector.

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After an unexpectedly weak reading in July, August is expected to see some improvement in payrolls, with a potential gain of around 80-90,000 as signs of stability return to the jobs market and another strong contribution from healthcare. The unemployment rate could however move back to 4.2%, but this is more due to changes in the labour force participation rather than a sign of weakness. This week’s US jobless claims have been encouraging with the number of Americans seeking unemployment benefits for the first time falling for the second consecutive week.”