Melrose Share News (MRO)

(Alliance News) - Deal making propelled London stock prices into the new month, with the mid-cap FTSE 250 hitting a record high on Monday as shares in Meggitt surged on a takeover offer.

The pound was holding onto overnight gains despite a mixed UK manufacturing PMI report, which showed activity is being stifled by staff and material shortages.

The FTSE 100 index was up 63.55 points, or 0.9%, at 7,095.85 midday Monday. The mid-cap FTSE 250 index was up 326.78 points, or 1.4%, at 23,275.61 - having hit a record high of 23,306.07 in early dealings. The AIM All-Share index was up 0.4% at 1,256.39.

The Cboe UK 100 index was up 0.9% at 706.64. The Cboe 250 was up 1.5% at 21,042.37, and the Cboe Small Companies up 0.4% at 15,290.88.

In mainland Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt were up 0.8% and 0.1% respectively in early afternoon trade. Weighing on Germany's DAX was Munich-headquartered financial services and insurance firm Allianz, which tumbled 7.6% as it warned pending litigation in the US regarding its Structured Alpha Funds may hurt future financial results.

"Today's market sentiment seems to be mainly boosted by two different drivers, both on the other side of the world: progress towards the USD550 billion infrastructure plan in the US, which is expected to pass in the Senate this week, as well as an easing of concerns from China following last week's government crackdown on its biggest companies," said Pierre Veyret, technical analyst at ActivTrades.

A bipartisan group "finished writing the text of the infrastructure bill", Democratic Senate leader Chuck Schumer told the Senate, which met for an extended weekend session in Washington. "I believe the Senate can process relevant amendments and pass this bill in a matter of days."

In New York, shares in construction machinery and equipment company Caterpillar were trading up 0.9% in the pre-market.

Overall, Wall Street is on course for a higher start to the week, with the Dow Jones, S&P 500 and Nasdaq Composite all pointed up 0.5%.

As investors track the infrastructure bill's progress through Congress, focus will lie as well on Monday's US IHS Markit manufacturing PMI at 1445 BST, while ISM's similar gauge is due at 1500 BST.

Data from Europe earlier in the day pointed to robust manufacturing activity in both the eurozone and UK, but with supply issues capping momentum.

IHS Markit/CIPS purchasing managers' index of UK manufacturing came in at 60.4 points in July, down from 63.9 in June and further off May's record high of 65.6. Nonetheless, with the PMI remaining above the no-change mark of 50.0, the latest reading indicates manufacturing activity still expanded at pace last month.

Raw material, staff and skill shortages all put a cap on growth in July. Further jobs were added in July, but the rate of hiring was insufficient to prevent a further increase in backlogs. Average input costs rose at a "near survey-record pace", with over 72% of manufacturers seeing an increase, said IHS Markit.

The eurozone manufacturing PMI also slipped in July, to 62.8 points from 63.4 in June. While still a strong reading, IHS Markit noted that input shortages worsened again at a near record rate and July saw another near-record rise in backlogs of work.

The euro and pound hung onto gains against the dollar despite Monday's mixed manufacturing read-outs.

Sterling was quoted at USD1.3908 on Monday, higher than USD1.3898 at the London equities close on Friday. The euro traded at USD1.1887, up from USD1.1858 late Friday.

Against the yen, the dollar softened to JPY109.55 from JPY109.74 late Friday.

Amid the bullish mood, the price of safe-haven gold pulled back. Gold was quoted at USD1,808.73 an ounce on Monday, lower than USD1,821.81 on Friday. Brent oil also eased, trading at USD74.38 a barrel, down from USD76.29.

In London, Melrose Industries was helping to push the FTSE 100 higher, gaining 6.1%.

"UK stocks have long been considered cheap and this year's M&A spree shows that overseas investors have finally got enough confidence to pounce on opportunities after years of showing little interest in the market," said Russ Mould, investment director at AJ Bell.

He noted Melrose Industries was gaining on Monday in a positive read-across from a takeover offer for FTSE 250 constituent Meggitt.

Shares in aerospace and defence firm Meggitt surged 56% to 732.98 pence in London at midday. This was after Cleveland, Ohio-based Parker-Hannifin tabled a 800p per share cash offer for Meggitt, valuing it as a whole at GBP6.3 billion.

"[Melrose] also has interests in the aerospace and defence sector, having bought GKN in 2018," said Mould. "It would be interesting to see if this predator becomes prey, as Melrose has historically been the one doing the bidding.

Also higher on M&A news on Monday was Sanne, which rose 7.8% in the FTSE 250 as it revealed advanced takeover talks with Apex Group, potentially sparking a bidding war with private equity firm Cinven.

The London-based provider of alternative asset and corporate services said it is in advanced talks with financial services provider Apex over a possible cash buyout worth 920p per Sanne share. Sanne noted Apex's offer represents a 53% premium to Sanne's closing share price of 603p on May 13, the day before the commencement of the current offer period.

Sanne said that Apex is well advanced in its due diligence ahead of its put-up-or-shut-up deadline on August 30.

Last Wednesday, Sanne said it remained in takeover talks with Cinven. The company entered talks with Cinven over a 875p offer in June, after rejecting a string of lower offers. Cinven has until Friday to make a firm offer. Sanne made no mention of Cinven in its announcement on Monday.

Towards the other end of the FTSE 250 was Tui, which fell 3.0% after Barclays cut the Anglo-German holiday operator to Underweight from Equal Weight.

Elsewhere in London, Senior shares advanced 7.0% as it lifted its full-year outlook following an interim swing to profit.

Pretax profit for the six months ended June 30 was GBP22.3 million, swinging year-on-year from a loss of GBP136.3 million. The firm posted revenue of GBP332.8 million, a fall of 19% from GBP409 million.

"Despite the well-publicised headwinds associated with freight and commodity costs; semiconductor supply chain challenges for our land vehicle customers; as well as the divestment of our Senior Aerospace Connecticut business, we expect overall group performance for 2021 to be slightly ahead of our previous expectations," Senior said.

By Lucy Heming; lucyheming@alliancenews.com

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