Interactive Investor

Shares round-up: Croda rallies, RSA, bank sector bids, Micro Focus

18th November 2020 12:51

Graeme Evans from interactive investor

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Acquisition and takeover activity prove there’s still plenty to fuel upside in this market.

Winter wonder stock Croda International (LSE:CRDA) put its proud record of seasonal growth on the line today with a bold move to buy a Spanish rival in a deal worth £736 million.

FTSE 100-listed Croda's swoop for Iberchem boosts the speciality chemicals firm in fragrance and flavours, but requires a £600 million fundraising. Retail investors will be able to participate in the share placing through the PrimaryBid platform at the same price as institutions.

Despite the impact of the placing, representing 8% of Croda's share capital, the stock still improved 3% to 6,244p on Wednesday, as investors backed the latest expansion move and unchanged trading outlook from the East Yorkshire-based company.

Croda, which makes ingredients for shampoos and skin care products, said it was buying a business with a decade-long record of unbroken growth and exposure to a global fragrance market expected to expand 5.6% a year to US$58.8 billion (£44.4 billion) by 2024.

The combined business will be particularly attractive to regional, 'own-brand' and independent customers seeking a 'one stop shop' for their needs in personal and home care products.

Croda boss Steve Foots said: “We have known Iberchem's team for many years and their business is highly compatible with Croda's.” He also highlighted the benefits of Iberchem's significant exposure to emerging markets, strong customer focus and R&D capability.

The acquisition is an eye-catching start to Croda's latest crack at another winter of share price growth, having become a staple member of Wild's Consistent Winter Portfolio, which you can find out more about on the interactive investor website here.  

Its record of success dates back at least 16 years, with the performance over the past decade representing an average return of 12.4%. The stock has risen sharply from 4,113p in April.

Croda adds to the recent run of dealmaking in the London market, with RSA Insurance (LSE:RSA) announcing today it had backed a £7.2 billion break-up proposal from Canada's Intact and Denmark's Tryg at 685p a share. As well as the board of the 300-year-old insurer backing the deal, major shareholder Cevian Capital has swung behind the takeover.

Analysts are now speculating that the RSA break-up raises the possibility that Aviva (LSE:AV.) and Hiscox (LSE:HSX) could be the next insurers to see approaches for parts or all of their businesses.

Consolidation talk in the banking sector also drove shares in Virgin Money (LSE:VMUK) 4% higher after Sainsbury's (LSE:SBRY) confirmed yesterday it had received expressions of interest in its banking arm. TSB's Spanish owner Sabadell is also in talks about a sale to BBVA.

The speculation deflected attention from another steady performance by green energy company SSE (LSE:SSE), whose shares rose 4% to a four-month high of 1,407.5p after it announced the continuation of its five-year dividend plan. Today's interim results included a half-year dividend of 24.4p.

In the FTSE 250 index, software company Micro Focus International (LSE:MCRO) surged 27% after revealing faster-than-expected progress in its turnaround plan.

Revenues for the 12 months to 31 October were in line with hopes at $3 billion (£2.27 billion), but an underlying margin of 39% was better-than-expected after operational improvement and cost initiatives in the first nine months of the three-year strategy.

Shares rose 73.5p to 345.2p, but the former FTSE 100 company had been as high as 3,000p back in 2017. Micro Focus, which helps clients to bridge existing and emerging technologies, crashed in value after its ill-fated deal to buy the software segment of Hewlett-Packard Enterprise for $8.8 billion. It underestimated the challenges and the greater than expected complexities posed by the acquisition, which included parts of former stock market star Autonomy.

CEO Stephen Murdoch said he was pleased with the reset of the business so far. He added:

“Cash generation and working capital management remain strong, the investments we've made are showing encouraging early results and we continue to see a clear, ongoing customer need for our solutions and approach to digital transformation.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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