(Sharecast News) – Shares in UK chemicals group Elementis on Wednesday surged as the company rejected a demand by major shareholder Franklin Mutual Advisers to sell the company.
Franklin has held a 9.8% of Elementis on behalf of clients since December 2020, and in an open letter said the company’s “stagnant” share price was “unacceptable” to shareholders and recent “value destructive acquisitions” had undermined confidence in management.
Elementis shares rose more than 12%, taking it to the top of the FTSE 250 index.
“The board has held a series of discussions with Franklin to understand their view and consider their request. After careful consideration, with the support of its advisors, the board does not consider an immediate sale of the Company to be in the best interests of its shareholders and is issuing this announcement to clarify its response,” Elementis said in a statement to the London Stock Exchange.
The company said it continued to make progress towards its medium-term goal of 17% adjusted operating margin and its target of below 1.5 times net debt and core profit.
However, Franklin said that Elementis “is not of a sufficient size to accomplish its targets”, according to a letter signed by portfolio managers Steve Raineri and Chris Meeker.
It also said the company’s capital allocation decisions “have contributed to an extremely disappointing degradation in the share price”.
“Specifically, the company spent $860m to acquire SummitReheis and Mondo Minerals in 2017 and 2018, respectively. Subsequently, the company has incurred over $200m in impairments associated with the Mondo Minerals acquisition. Since 2016, the stock price has declined by more than 50% and the company’s current market value is less than the amount spent to acquire these two companies.”
“This is a shocking amount of shareholder value destruction.”
Meanwhile, a surprise drop in UK inflation triggered some big gains for London-listed property stocks on Wednesday, with hopes rising that the Bank of England’s next interest-rate hike might just be its last.
The year-on-year change in the UK consumer price index (CPI) eased to 6.7% last month, from 6.8% in July and surprising economists who had forecast a slight tick-up to 7.1%.
Importantly, core inflation dropped to 6.2% in August, from 6.9% the month before. While this is still more than three times the BoE’s target, it’s a strong step in the right direction and well below the 6.8% reading expected by analysts.
Crest Nicholson, British Land, Bellway, Persimmon, Redrow and Derwent London were also putting in impressive gains, while landscaping specialist Marshalls also picked up on the sentiment.
UK homewares retailer Dunelm reported a 7.8% fall in annual profits as hard-pressed shoppers reined in spending amid the cost-of-living crisis, but expects earnings growth this year on higher volumes.
Pre-tax profit for the 12 months to July 1 came in at £192.7m from £209m a year earlier while sales rose 5.5% to £1.6bn.
A final ordinary dividend of 27p a share was declared taking the full year payout to 42p a share, a rise of 5%. A special 40p dividend was paid in April.
The company said it was “pleased” with trading early in the new financial year, despite “unpredictable” consumer behaviour, and added it expected to see 2024 sales and earnings growth, driven by volume as easing freight costs supported gross margins and a tight operational grip on costs helped mitigate ongoing inflation.
“In a period of extensive economic uncertainty, we have maintained our focus on enhancing our customer proposition, expanding our offer whilst staying fully committed to value and making every pound count. This has clearly resonated well with our customers, enabling us to continue growing both sales and market share,” said chief executive Nick Wilkinson.
FTSE 250 (MCX) 18,721.27 1.60%
FTSE 250 – Risers
Elementis (ELM) 125.00p 12.01%
Bytes Technology Group (BYIT) 506.00p 6.93%
Crest Nicholson Holdings (CRST) 190.90p 5.88%
Mobico Group (MCG) 87.60p 4.91%
Persimmon (PSN) 1,096.50p 4.78%
Great Portland Estates (GPE) 422.20p 4.76%
Bellway (BWY) 2,260.00p 4.63%
Future (FUTR) 781.00p 4.62%
Marshalls (MSLH) 271.80p 4.54%
Keller Group (KLR) 784.00p 4.53%
FTSE 250 – Fallers
Dunelm Group (DNLM) 1,031.00p -4.80%
Drax Group (DRX) 508.20p -2.23%
Bank of Georgia Group (BGEO) 3,660.00p -1.88%
Hiscox Limited (DI) (HSX) 1,033.00p -1.24%
C&C Group (CDI) (CCR) 138.00p -0.86%
Babcock International Group (BAB) 380.00p -0.84%
Jupiter Fund Management (JUP) 95.75p -0.62%
Renishaw (RSW) 3,634.00p -0.60%
Baillie Gifford Japan Trust (BGFD) 724.00p -0.55%
TBC Bank Group (TBCG) 2,955.00p -0.51%