By Charlie Conchie
UK oil and gas firms, including BP, could be on the receiving end of a wave of takeovers this year as investors swoop on historically cheap London-listed companies, a top analyst has predicted.
London firms were the target of a wave of takeover deals last year as foreign buyers took advantage of a weak pound and valuations that remain weighed down by the prospect of a lengthy recession and the lingering effects of Brexit.
But the bargain hunt in London could be set to continue with companies as big as BP now vulnerable to takeover deals, according to Michael Stiasny, head of UK equities at M&G.
“Historically low valuations of UK companies, alongside currency weakness, have also created potentially-attractive takeover targets. We may, therefore, see high-profile companies leave UK indices,” Stiasny said in a note to investors.
“While we do not base our investment decisions on such speculation, we would not be shocked to see a big name in the oil and gas or mining sectors subject to a bid, with companies like BP trading at a significant discount to their US peers, even after a strong year of performance.”
Stiasny said the outlook for the market this year is “far from positive” despite a rosy start for London’s flagship equities index. Weakness in the economy, a still-flagging pound, “sticky inflationary pressures” and persistent disputes between ministers and unions would continue to depress firms’ valuations, he said.
The warnings come after a host of big name companies were picked off last year by foreign firms including iconic fashion brand Ted Baker and Newcastle-based Go Ahead.
A number of UK tech firms also fell into the sights of foreign buyers, with software company Aveva bought by French firm Schneider Electric, and cybersecurity firm Darktrace receiving a later-abandoned bid by US private equity giant Thoma Bravo.
The takeover flurry came despite the FTSE 100 delivering a strong performance across the year, buoyed by the number of so-called “old economy” firms like mining and oil and gas giants. The FTSE was the only major global index to deliver a positive return in local currency terms.
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