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Telegraph
7 days ago
- Business
- Telegraph
Bull markets only end when the money runs out. The FTSE's £170bn payday is no bear case
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest There is an old saying that bull markets only end when the money runs out. Right now, however, the UK stock market is showering investors in cash, which may help to explain why still seemingly unloved indices could yet continue to confound the doubters. Much commentary focusses on how companies are leaving London for pastures new or choosing to list elsewhere if they are stock market newcomers. However, such gloom is yet to hold back the benchmarks and, in the year to date, the UK stock market is outperforming America – especially once the dollar's decline against the pound is taken into account. The FTSE 100 stands above 9,000 for the first time, the FTSE 350 above 5,000 and the FTSE All-Share is making a bold bid to cross 5,000 for the first time as well, all helped by healthy dividends, share buybacks and also takeover activity. Those deals are interesting for two reasons. First, they suggest that someone, somewhere still thinks that UK stocks are cheap, given the average takeover premium of 38pc offered so far in 2025 on 45 bids that have either closed or are still live. The two most recent swoops for UK firms, for Empresaria and portfolio holding Just Group by Legacy and BWS, respectively, both came at levels way above the prevailing share price. Second, merger and acquisition activity puts cash back in investors' pockets and they can redeploy that liquidity by buying something else. Not every offer from a predator is cash only – the approaches for Assura, Bakkavor, Urban Logistics Real Estate Investment Trust, Marlowe and Dowlais all have some element of payment in stock to them – but pretty much all come with cash on the table to some degree, and that cash may well look for a new home once the deals conclude. The approach for Just Group, which values the life insurer at £2.4bn, is the tenth in 2025 to date that comes with a price tag in excess of £1bn. The biggest proposed takeover of the year so far on the UK market is that of precision instruments maker Spectris. Rival private equity groups Advent and KKR are locked in a battle for the precision instrument maker and KKR's latest cash-plus dividend offer values the target at more than £4.1bn. The premium to the undisturbed share price is also an eye-catching 105pc. The Empresaria, Just Group and Spectris deals take the total in concluded or live bids for UK-listed firms to just shy of £25bn so far this year. That sum follows on from the tallies of £49bn and £17bn for 2024 and 2023, respectively. That running total of nearly £25bn for 2025 equates to 1pc of the FTSE All-Share's £2.5tn market capitalisation. Add the consensus analysts' forecast of £91.3bn in dividend payments from the index's members and the £54bn in share buybacks already declared by them this year and the total cash return to investors is estimated to be £170bn. That is 6.6pc of the FTSE All-Share's market cap. Such a total cash yield may look tempting to many investors, as it handily beats the prevailing rate of inflation, the Bank of England base rate and the benchmark UK ten-year Gilt yield. The cash inflow is therefore the total opposite of the cash drain that tends to call the top in markets, when investors are seduced by a rash of initial public offerings and new floats, and then besieged by second offerings of that same paper. It is also – hopefully – an affirmation of the value-oriented approach taken by this column. A strong narrative and investment case can carry a share price a long way, but the valuation paid is the ultimate arbiter of investment return. Even a good company can be a bad investment if you overpay for a share of its profits, cash flows and assets. Current portfolio holdings that are on the receiving end of a bid are the aforementioned Just Group, Assura and Dowlais. We shall have to see how those situations develop, but the Just bid comes at a near 200pc premium to our entry price, while Assura offers a 45pc uplift. Even if a drop in the share price of Dowlais' would-be acquirer American Axle is currently capping our upside, given the stock element of the offer, things are looking positive. Other picks that drew a predator have included Shanta Gold, AVEVA, Clinigen, Contour Global, Gamesys and Sky. We even missed a few more, notably Morrison and Manx Telecom simply through impetuosity, to provide a reminder of the value of patience.
Daily Mail
14-06-2025
- Business
- Daily Mail
ABRDN EQUITY INCOME TRUST: UK has never looked so good
Few investment trusts are currently in expansion mode, but Abrdn Equity Income is quite an exception. On the back of some good returns over the past year, the £170 million trust recently issued 175,000 new shares, raising more than £600,000 in the process – money that was gleefully invested in the UK stock market by manager Thomas Moore. For Moore, who has been at the trust's helm for more than 13 years, the successful share issue reflects the fact that investors are 'looking at the UK stock market again'. 'As a manager, I'm licking my lips,' he says. 'The market is in a sweet spot after years of shrinkage in the cohort of investors prepared to buy UK shares.' He also believes the trust's mix of high dividend yield (6.4 per cent per annum) and strong share price gains is proving a compelling choice for many investors. 'We're delivering a winning formula, comprising a mix of income and capital growth,' he adds. The numbers are appealing. Over the past year, the London-listed trust has generated a total return of 24.2 per cent – in excess of both the FTSE 100 (up 8.5 per cent) and the broader FTSE All-Share Index (7.9 per cent). It has also outperformed the average for its UK equity income peer group of 13.6 per cent. Alongside this, the trust has a 24-year track record of annual dividend growth. In the last financial year (to the end of September), it paid quarterly dividends totalling 22.9p a share. So far this year it has declared two dividends, each worth 5.7p a share, with the second payment to be made at the end of this month. To put these payments into perspective, the shares are worth around £3.56. To complete the rather glossy picture, the shares trade at a small premium to the value of the trust's assets – the shares of most investment trusts stand at a discount to the value of their underlying assets. Moore is very much an investor who goes in search of cheap UK shares which provide an attractive dividend yield. 'I'm not worried about buying cheap shares,' he says. 'I stay close to the companies we invest in.' He says there are plenty of good value companies around, 'throwing off lots of cash' which can be used in part to fund dividends – or share buy-backs. It means the trust's 50-strong portfolio comprises the likes of investment house M&G, insurer L&G and tobacco giant British American Tobacco with compelling yields – 7.9, 8.5 and 6.6 per cent respectively. Moore says that at the moment he is able to find attractively priced shares with good yields from right across the UK stock market – among both the FTSE 100 as well as smaller companies. One of his favourite portfolio stocks is airline Easyjet. Although the dividend yield is modest at just over 2 per cent, he is convinced that the company has the potential to double its earnings. Once the company's investment in new and bigger planes is complete, in the process boosting earnings, he believes that more money will be diverted towards paying dividends and completing share buy-backs. 'Both historically and when compared to rivals, such as Ryanair, its shares look cheap,' adds Moore. Although Moore is pleased with the way the trust is performing, he is 'not counting his chickens'. He says: 'For now we're in a good spot, but we have to be mindful of the challenging macroeconomic backdrop and the potential for disruption in the bond markets.' The trust's stock market identification number is 0603959 and the ticker AEI. Annual charges total 0.86 per cent.
