Anglo American has rejected BHP’s unsolicited offer just a day after announcing it has received interest from the world’s largest mining company.

The company said in a statement that BHP’s bid ‘significantly undervalues Anglo American and its future prospects’.

Anglo American shares were down, but only marginally. This suggests the market thinks BHP will be back with a better offer before long.

“It’s no surprise that Anglo American has rejected BHP’s takeover bid. Anglo American has long seen itself as one of the big players in the market and it certainly won’t let a rival swoop on the business when its chips are down,” said Russ Mould, investment director at AJ Bell.

“Miners have a habit of going through bad patches as they are juggling so many different risks and selling prices are, on the whole, out of their control due to the nature of the commodities market. Anglo American has certainly had its fair share of operational setbacks and negative readjustments to output guidance in recent times, but it will fight tooth and nail to stop any takeover attempts while it tries to get back on top.”

Mould continued to explain Anglo’s rejection of BHP bid follows a well trodden path in mining M&A which could see other players start a bidding war.

“The usual playbook for mega deals in the resources space is for the original suitor to respond to rejection by coming back with a better offer, or someone else throwing their hat into the ring. That contender could be Rio Tinto as it will certainly be watching activities with keen interest given it can see the same opportunity as BHP.”

NatWest wrapped up Q1 2024 earnings from the FTSE 100’s UK-focused banks with solid numbers across the board as profits and income fell, but beat analyst expectations.

Total income was better than expected at £3.5bn, and Net Interest Margins were flying high at 2.05% compared to 1.98% expected. In the context of last year’s performance, NatWest’s results were much lower than those of the comparable period, but this was to be expected.

There were no real surprises in NatWest’s update, more a slightly better performance over the period than the doomsayers had predicted at the beginning of the year. The UK economy has slowed, and interest rates are set to drop, marking the end of a favourable period of income margins. The 3% tick higher in NatWest shares on Friday is a sign of investors’ approval of how NatWest is navigating the current environment.

Investors will have been watching closely for the impact of a slowdown at the end of last year and how it played into earnings. An impairment charge of roughly less than half of what was expected will help confidence in the bank as the UK economy exits recession. 

“NatWest is best of the bunch. Lloyds and Barclays led the way this week and NatWest certainly hasn’t disappointed with first-quarter results very nearly a clean sweep vs expectations. Impairments came in lower than expected, net interest margin ticked higher from the previous quarter and both customer loans and deposit levels grew,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“The UK banking sector looks strong. NatWest has followed its peers in calling out a slowing of some of the headwinds that have been impacting performance in recent quarters. Customers shifting to higher-rate accounts is slowing as expected, impairment rates on loans have stabilised at low levels, the economic outlook has improved, and balance sheets remain strong.”

Lookng forward, Britzman was upbeat on the general environment for NatWest and how it will deal with interest rate expectations.

“Of the UK-listed banks, NatWest looks best placed to benefit from a higher rate environment as its structural hedge comes off some of the lowest rates in the sector. Think of this like a bond portfolio that’s rolling on to higher yields over the next few years. Management has kept guidance largely in place, which still looks on the conservative side given it factors in several rate cuts this year that really don’t look likely to come. That leaves NatWest not only with the potential for operational strength but also paves the way for positive income surprises later in the year.”

Tekcapital portfolio company Innovative Eyewear has recently received notices of allowance on three new design patents covering its forthcoming Lucyd Armor smart safety glasses product. The allowed design patents (application Nos. 29/806,204, 29/806/207, 29/806/209) protect the ornamental design of the AR-enabled protective eyewear.

The company has also filed new utility and design patent applications specifically covering the functional and aesthetic aspects of the Lucyd Armor glasses, as it prepares for the product’s launch in mid-2024. Lucyd Armor combines critical safety features with Innovative Eyewear’s open-ear audio and artificial intelligence capabilities.

The developments represent a new application for the company, which opens the door to an entirely new market.

The global safety glasses segment, which spans construction, manufacturing, healthcare and research fields, is projected to reach $4.18 billion in value by 2030. By integrating hands-free communication and computing into industry-approved protective eyewear, the company aims to enhance collaboration and productivity for teams across numerous work environments requiring safety gear.

To facilitate team coordination through the Lucyd Armor glasses, Innovative Eyewear offers the Vyrb mobile app providing voice-over-IP chatrooms capable of hosting up to 100 participants simultaneously on both iOS and Android platforms.

Innovative Eyewear CEO Harrison Gross said:

“Lucyd Armor smart safety glasses are a unique product and the culmination of rigorous in-house R&D, which we are thrilled to bring to the personal protective equipment market. We believe these products will deliver a cutting-edge experience to safety glass users around the world, making it easier than ever for industrial workers to communicate handsfree in a wide range of environments. We are commencing testing to ensure our smart safety eyewear meets US Occupational Safety and Health Administration Agency’s standards and expect to have the glasses available to consumers in the coming months. In addition to our direct-to-consumer channels such as Amazon and BestBuy.com, we look forward to launching Lucyd Armor in hardware and home improvement stores, developing an entirely new vertical for the company.”

The FTSE 100 maintained its positive tone on Thursday, with corporate earnings providing investors the impetus to buy into London’s leading equities. 

London’s leading index briefly traded above 8,100 – a new intraday high – before falling back to trade at 8,077 at the time of writing.

“The FTSE 100 is having the time of its life as takeovers continue to power the market. BHP’s move on Anglo American has got investors excited at who else in the blue-chip UK stock index might be next for a bid,” said Russ Mould, investment director at AJ Bell.

That said, Thursday’s top riser, Anglo American, which gained 13% after receiving a bid from BHP, represented an underlying threat to London’s market as another major FTSE 100 constituent looks set to leave.

Earnings season is in full swing, and investors received updates from Barclays, Persimmon, AstraZeneca and Sainsbury’s, among others, on Thursday. A generally positive trend among those reporting helped support the index as investor optimism on earnings increased.

Barclays

Barclays investors have a lot to be pleased about. Income and profit beat expectations, and Barclays’ UK net interest margin, a key profitability metric, was much better than Lloyds who reported yesterday. 

“Credit where it’s due, cost controls look to be making a difference for Barclays. First-quarter trading was better than expected, but the weaker net interest income guidance for 2024 will be a little disappointing,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

Barclays shares were over 6% higher at the time of writing.

Sainsbury’s

Sainsbury’s shares were slightly lower after reporting full year preliminary results. The move was more likely a result of profit-taking rather than any major disappointment with the data. 

The company has decided to refocus its efforts on the food business and grocery sales grew 9.4%. The drop in shares today can be attributed to a soggy reaction in shares.

“Sainsbury’s results didn’t hit the right note with investors despite upbeat commentary from management. Underlying profit growth of 1.6% is pedestrian and a lack of dividend growth hardly signals a business going places. While it’s done well by focusing on food and broadening its appeal with more value-led products, clothing sales remain miserable and Argos’ performance is nothing to write home about,” Russ Mould explained.

Anglo American 

The BHP bid for Anglo American is another blow to London. The problems with low valuations and diminishing risk appetite are well documented but another major company in Anglo American leaving London is a bitter pill to swallow.

“Anglo American was a sitting duck after the sharp decline in its share price last year. The firm saw its market value shrink by 39% in 2023 due to operational setbacks, weaker commodity prices and downgraded production guidance. That provided an opportunity for a larger rival to pounce on the business, taking a long-term view that its assets have considerable value and any short-term operational issues can be fixed. BHP has been the one to step up to the plate,” said Dan Coatsworth, investment analyst at AJ Bell.

“Miners have a nasty habit of chasing acquisitions precisely at the wrong time, often striking deals at the top of the market. They get dollar signs in their eyes when commodity prices are rallying and often end up over-paying for acquisitions. It’s therefore instructive to note the recent rally in the copper price, now trading at a two-year high.”

Anglo shares were up over 13% at the time of writing.

Incidentally, Anglo American was one of UK Investor Magazine’s Top 15 Stock Picks for 2024. It would be a real shame if it weren’t here at the end of the year.

Barclays Q1 update is another steady-as-you-go report from a UK bank. With clouds forming over banks’ net interest margins and questions remaining about the global economy, Barclays investors will be pleased to see that the bank performed marginally better than expected in the first quarter.

Total income was £7bn, a smidge higher than the £6.9bn expected, leading to profits of £2.3bn, again better than expected.

Barclays shares were over 3% higher in early trade on Thursday as investors reacted to an update that gave them nothing to be overly concerned about pricing fuel to the bank’s rally that started in October 2023.

Barclays shares are up over 50% from their lows, making it one of the better-performing banks in terms of share price. 

Compared to Lloyds, which reported yesterday, Barclays is a much more international bank with a better-diversified business model. For example, Barclays has a substantial investment operation.

In the UK, Barclays’s net interest margin, at 3.09%, was much better than that reported by Lloyds yesterday, which will encourage investors. However guidance for the year ahead is less appealing and the risks of lower interest rates to Barclays profits are notable.

“Credit where it’s due, cost controls look to be making a difference for Barclays. First-quarter trading was better than expected, but the weaker net interest income guidance for 2024 will be a little disappointing,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“In its UK arm, results were very similar to what markets heard from Lloyds yesterday. Structural hedge income is booming as lower-yield instruments are being reinvested at higher rates. That’s helping to offset ongoing weakness from depositors in search of better rates and a mortgage market that’s not as profitable as a few years ago. Both those headwinds are expected to ease throughout the year, and with loan default levels actually ticking down at the group level, there’s enough here to whet investors’ appetites.

“Looking below the hood on defaults, Barclays has a big stake in both the UK and US card market which adds another angle. Over the pond, default levels surprised on the upside and are higher than back in the UK, with US consumers clearly feeling the pinch a tad more. This was one area that disappointed, but Barclays remains confident in its reserve levels and expects things to improve as the year progresses.”

After the acquisition of Argos, the supermarket decided to refocus on its bread-and-butter food business and bolster its position in the grocery market amid growing pressure from discounters.

The measures implemented by Sainsbury’s are working as intended, and grocery sales grew 9.4% in the 52 weeks to 2nd March 2024.

Total retail sales grew 6.8% to £30.6bn in the year, while general merchandise sales, which include Argos, grew only 1.2%.

“Sainsbury’s has delivered a strong set of results amid its large-scale strategy shift. Crucially, the 6.8% increase in retail sales has been driven by volume. This is a more resilient strategy than price, but can often be more difficult to achieve. The successes are very much showing up in the numbers, with underlying retail operating profits climbing over 4%,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

If we judge Sainsbury’s strategy to focus on food purely by growth in different business areas, it’s working. 

“Sainsbury’s has arguably been guilty in the past of having its fingers in too many pies, allowing lower cost rivals to muscle in on market share. However, after launching its “Food First ” strategy which has since evolved into “Next Level Sainsburys” earlier this year, a renewed focus was given to groceries, the Nectar loyalty card scheme and £1bn of cost savings,” said

“This morning’s results indicate these innovations are beginning to bear fruit as the supermarket chain reported record volume growth, with grocery sales up 9.4% and expected to increase in the year ahead.”

Sainsbury’s has successfully retained its premium customer base while fighting off the discounters, which is no mean feat. 

The Nectar card scheme has been a major contributor to this. Sainsbury’s says the card provides around £12 savings per £80 shop. This method of lowering prices has retained its premium customers, who opt for higher-priced ranges while offering prices on some lines that rival Lidl and Aldi. 

Some concerns about the financial services business may lead to lower profit in the unit next year, but this is insignificant compared to the overall group operating profit. 

Investors took the opportunity to book profits after a reasonable run from March lows, and shares were down 2% on Thursday. For Sainsbury’s to revisit 52-week highs, one would expect improvement in the general merchandise business.

Anglo American shares surged sharply higher on Thursday after BHP, the world’s largest mining company, made a $31bn approach for the company.

The move comes amid a recovery in commodities prices and improving sentiment towards China.

Starting from a low base, investor sentiment toward Chinese equities is warming, and stocks with exposure to the world’s second-largest economy are also enjoying the benefits. 

However, the implications for London’s market run a lot deeper. Anglo American may be the next in a long line of companies leaving London either by switching their listing or being taken over. BHP itself was once a London-listed company before shifting its primary listing to Sydney.

’The buyout offer from BHP, the world’s largest publicly listed miner, for Anglo American, won’t just shake up the mining industry, but will send a fresh chill through the City of London,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“There are concerns that if the deal goes through it could be the tip of the iceberg and more giants could leave the exchange. It comes hot on the heels of speculation that Shell might up sticks and leave for New York, rumours that Ocado may be considering leaving for the Big Apple, and follows the crushing disappointment of home-grown chip designer Arm choosing the Nasdaq over the FTSE 100.”

Anglo American was one of the UK Investor Magazine’s Top 15 Stocks Picks for 2024. After the 12% rise today, Anglo American is now up 26% in 2024, making it one of our best performers today date.