Virgin Money shares were sharply higher on Thursday after the lender announced it had received a formal takeover offer from Nationwide and agreed on preliminary terms.

The deal values Virgin Money at £2.9bn, a 38% premium to Virgin Money’s undisturbed share price as of 6th March 2024.

Under the proposed terms, Virgin Money shareholders will receive a total of 220p comprising of 218p cash consideration and 2p for Virgin Money’s normal dividend calendar.

Virgin Money shares were 36% higher at the time of writing.

The deal today represents another example of a UK-listed company being snapped up by a private competitor clearly seeing more value in the shares than in public markets. 

What’s remarkable about today’s deal is the acquirer, Nationwide, is a naturally conservative building society owned by its members. For this organisation to deploy £2.9bn capital to take over its competitor, it must see deep value in the stock.

It’s also notable in terms of the timing. The lending market has faced two years of falling demand as mortgage rates increase. With the Bank of England likely to cut rates in the coming months, Nationwide may see a pick up in the market and feel now is the time to make its move.

“It’s an interesting time for big deals in the mortgage sector. We’ve seen tentative signs that the property market is regaining strength after a difficult few years hampered by a high interest rate environment which made mortgages less affordable,” said AJ Bell investment director Russ Mould.

“While mortgage rates have crept back up in recent weeks, the general consensus is that the Bank of England will start cutting base rates later this year and that should hopefully benefit those looking to move home or get on the housing ladder.

“Nationwide is effectively pouncing on Virgin Money at a time when prospects are improving for its industry, albeit we’re still in a volatile period until the base rate starts to come down.”

Mould suggested Nationwide are making a well-timed move, given that most deals are completed when valuations are high and corporates are prepared to splash their cash.

“This is slightly unusual as companies often buy rivals at precisely the wrong time – namely acquiring at the top of the market when everything looks good and then overpaying for deals, rather than taking bold steps and acquiring when everything looks bad and valuations are weak,” Mould said.

The UK government are way behind in the polls, and today was an opportunity to win voters over. We won’t know if they’ve been successful in swinging the polls until later this year. We do know, however, that the budget hasn’t upset equity markets.

The FTSE 100 was 0.45% higher at the time of writing and was extending gains.

The London’s leading index was likely more of a relief rally Hunt didn’t say anything to send markets into a tailspin rather than the start of a wave of optimism.

The standout for investors will be the introduction of the British ISA which is having a mixed reception from the investment industry. The balance is probably leaning towards a negative reaction, with some industry experts tearing the scheme apart.

AJ Bell’s CEO has verbally destroyed the concept highlighting major problems with the implementation of a British ISA and whether it can actually achieve its goals.

“Increasing investment into UK companies is a laudable aim, but this ill-conceived, politically motivated decision will simply not achieve that objective,” said Michael Summersgill, chief executive at AJ Bell.

“50% of the money our customers currently invest through their stocks and shares ISAs is invested into UK assets, so this new allowance will have no impact whatsoever on their investment behaviour.

“A tiny minority of people max out their £20,000 ISA allowance each year, but these are the only ones that will see any benefit from the additional British ISA allowance.  In the context of the £2tn+ UK stock market, any additional investment generated by these investors through the British ISA will be a rounding error.

“For most people, the British ISA only adds an unwelcome complexity. People will now have another option to evaluate when deciding which ISA type is right for them.”

FTSE 100 mover

As Hunt’s moves were largely announced before the budget, there was little in the way of market reaction. Housebuilders were flat with the absence of any major support for the property market.

Banks were marginally higher and IAG was the top gainer after a broker upgrade.

However, as Hunt fades into the background, focus will turn back to the US a concerns about the ‘magnificent 7’s’ sell off overnight.

“Overall the magnificent 7 lost $233bn in market value on Tuesday with the only member continuing to defy gravity being advanced chip designer Nvidia, whose shares climbed 0.9%,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

“Nvidia has seen surging demand elsewhere outweigh export restrictions to China and moved to mitigate these with a toned-down AI supercomputer for the Chinese market. Rumours suggest a similar move by rival AMD has hit a regulatory roadblock in getting its lower-powered model approved.”

Legal & General missed full-year earnings consensus and the disappointment was enough to send shares lower by 3% on Wednesday.

In the context of recent share price performance, the drop represents mild profit-taking, not investors rushing to dump their shares.

Many hold Legal & General for its dividend, and from that respect, it’s steady as she goes. A 5% increase in the dividend will satisfy income investors who will already be content with the market-beating dividend.

“Full-year results missed the mark for Legal & General as operating profit came in lower than expected. The investment management arm continues to feel the effects of higher interest rates. Average assets under management were down 12% on the prior year, largely a result of valuations coming under pressure from rate hikes,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“But Legal & General is a diverse beast, and the retirement business is the biggest driver of operating profit. It’s one of the world’s leading bulk annuity providers and is benefitting from a resurgence in the market. Companies with pension plans can pay L&G a lump sum to take the liabilities off their hands. As rates have moved off the lows seen in recent history, it’s become a more attractive market for both those looking to de-risk and those like L&G in the business of taking on these liabilities. 

It’s ironic Legal & General should report full-year earnings on the day of the budget after the company was so badly affected by Liz Truss’s doomed Autumn Statement in 2022.

Like other asset managers, the Legal & General was rocked by bond markets in the wake of Truss’s statement. However, Legal & General managed to produce £1.67bn operating profit in 2023, marginally higher than 2022. This missed estimates but investors will be looking to the future and teh new CEO’s growth plan.

“The UK is the most mature global market, but L&G has its eyes set further afield. Activity in overseas markets like the US, Canada and the Netherlands is increasing. Including the UK, there’s around $6trn of pensions liabilities floating about, with the percentage transferred to insurers barely touching double digits. That gives plenty of scope for L&G to keep growing,” said Britzman.

The shares have recovered from the depths of the post-Truss debacle and may be a little rich for investors who like the prospect of capital appreciation with their income. A strong set of results today may have sent Legal & General above the 250p mark and ignited a bout of technical buying. Not so.

There’s nothing in today’s report that screams sell but new investors may want to hold off until the dust settles. 

On Wednesday, MicroSalt announced the Notice of Allowance for a patent on its Low-sodium salt technology marking an important step forward in long-term shareholder value creation.

MicroSalt has announced a significant milestone in the expansion of its intellectual property portfolio. The United States Patent and Trademark Office has issued a Notice of Allowance for Patent Application No. 18/175,028, titled “Low Sodium Salt Composition.”

The patent application covers the production of MicroSalt, a low-sodium salt alternative that boasts superior adherence to foods compared to traditional salt crystals.

Unlike regular salt, MicroSalt’s formulation allows it to adhere to a carrier particle, enhancing its ability to cling to food surfaces. Formally recognising unique attributes such as those covered by the patent is a vital step in any technology company’s growth story.

“This Notice of Allowance further strengthens our IP position in the global low sodium market whilst providing additional evidence of our thought leadership position in the battle to lower sodium consumption worldwide,” said Rick Guiney, CEO of Microsalt.

While MicroSalt’s commercial opportunity is underpinned by World Health Organisation targets to reduce sodium content, shareholder valuation creation will be enhanced by the generation of intellectual property. Today’s announcement demonstrates securing intellectual property rights are at the forefront of MicroSalt’s strategy.

The Notice of Allowance signifies that the claims in the patent application have been deemed patentable by the USPTO. MicroSalt expects the patent to be officially granted upon completing certain administrative procedures in the near future. Once issued, the patent will provide protection until 2039. This is significant.

This newly allowed patent is one of 14 pending patent applications mentioned in MicroSalt’s admission document dated January 27, 2024. The company has also filed counterpart patent applications with similar claims in various countries, including China, Chile, Australia, Brazil, Europe, Canada, Japan, Russia, Mexico, India, and Hong Kong.

In the run-up to the end of the tax year and the deadline for using ISA allowances, AJ Bell has shared the top ten stocks held by its ISA millionaire accounts.

High dividend-paying FTSE 100 stocks with consistent business models are favoured by these account holders, who have an average age of 72.

AJ Bell highlighted the propensity of ISA millionaires to invest in stocks instead of funds. Investing in stocks as opposed to funds helps reduce fees and provides a more concentrated portfolio of higher conviction holdings, which can lead to market outperformance.

“AJ Bell ISA millionaires have shown a preference for investing in individual shares rather than funds, with 75% of their portfolios sitting in stocks (including investment trusts),” says Dan Coatsworth, investment analyst at AJ Bell.

There aren’t any real surprises in the top ten stocks held by AJ Bell’s ISA millionaires. All the top ten stocks are constituents of the FTSE 100, and all pay dividends. Notably, ISA millionaires are more than content to follow the mantra of ‘never sell Shell’ with 39% of accounts holding the oil major.

“Big blue-chip names like Shell, Lloyds and GSK are the most popular stocks with AJ Bell customers who are an ISA millionaire. US-listed tech giants including Nvidia, Microsoft and Apple also feature in portfolios but far more have large cap dividend-paying stocks from the UK market than overseas-listed stocks which pay little or no income to shareholders,” Dan Coatsworth said.

Another AJ Bell observation investors may do well to consider is the approach ISA millionaires take to managing portfolios. Retail investors can often be guilty of overtrading, and this is something those achieving the £1 million mark seem to avoid.

“There also appears to be a buy and hold mentality given the number of spin-offs in the ISA millionaire portfolios. Shares in Haleon, Woodside Energy and Jackson Financial were distributed free of charge to shareholders of GSK, BHP and Prudential respectively as the parent companies restructured and demerged holdings. These gifted stocks look as if they’ve been left alone in investors’ portfolios rather than the usual temptation of cashing out of a demerged business,” Coatsworth explained.

Tips AJ Bell provided to achieving the ISA millionaire status include starting early, maximising your contributions and spreading your risk.

The FTSE 100 was flat on Tuesday as the index reversed early losses following disappointment at reports that China will hold off material action to support its economy, setting a new growth target of 5%.

Market participants will be concerned that China isn’t planning meaningful stimulus given the slow growth rate and a GDP target far lower than historical averages. Stocks and commodities were sold as a result.

Disappointment around China was offset by strength in Intertek and Marks & Spencer. The FTSE 100 was flat at the time of writing but had started the day deep in the red.

Chinese growth was once the world’s growth powerhouse, and stimulus in response to signs of weakness was eagerly anticipated by equity markets. Anticipation was almost always met with fresh measures by Chinese authorities. Not anymore.

“Beijing wants to sort out problems in the property sector and add more jobs in urban areas – but it just didn’t seem enough to get investors fired up,” said Russ Mould, investment director at AJ Bell.

The market reaction is symptomatic of underlying concerns about the health of the Chinese economy and perceptions of underlying structural weakness, which can’t be fixed with sticking plaster stimulus measures. Today’s reaction appears to be markets telling Chinese authorities they must do more to reignite growth.

As expected, unhappiness with the economic situation played out in the FTSE 100’s China-focused sectors, especially mining companies. The sector started the session deep in the red but improved as trade progressed.

Rio Tinto was down 1.2%, Antofagasta slipped 1.1% and Anglo American was flat. Prudential was the FTSE 100’s second biggest faller.

Ashtead

Another former beacon of light for investors seeking upbeat growth stories was plant hire company Ashtead. After many years of consistently strong revenue and profit growth, the company has faltered in recent years. Ashtead’s Q3 results released on Tuesday were also soggy, with operating profit falling 3%.

“Ashtead has been a major success over the past few decades thanks to more companies deciding to rent rather than own construction equipment as well as significant spending on infrastructure in the US where it mainly does business,” Russ Mould said.

“That’s made investors consider Ashtead to be bulletproof, but the past few years have shown that it can occasionally be tough-going. “An ordinary three-month period has prompted the company to guide for full year revenue growth at the low end of the range. North America is key for Ashtead as it accounts for the lion’s share of its business, so a difficult time in that geography is always going to have a material impact.

“What will provide some reassurance to investors is this appears to be a short-term issue relating to a lower level of emergency response activity and reduced demand from the entertainment industry thanks to strikes.”

Ashtead shares fell 6%.

Intertek

Intertek will win no competition for being the sexiest FTSE 100 company. Still, the quality assurance specialist will grab the headlines today after revenue grew 7% in 2023, recording the highest like-for-like revenue growth of the last ten years.

“I would like to recognise all my colleagues for their unwavering support enabling us to deliver a strong 2023 performance in revenue growth, margin, EPS, cash and ROIC,” said André Lacroix, Chief Executive Officer of Intertek.

“Our revenue grew by 7.1% at constant currency driven by a LFL revenue growth of 6.2%, the highest in the last 10 years, and the contribution of our acquisitions. Our systemic performance management drove strong profit conversion with margins rising 60bps at constant currency, driving EPS growth of 11.0% at constant currency. Cash conversion at 122% was excellent.  

Intertek shares were 6% higher at the time of writing and was the FTSE 100’s top gainer.