| | | | | | | Upcoming ADVFN Webinar - Thursday June 2nd at 1pm - Sabien Technology Group PLC - LSE:SNT A presentation on the progress of the company’s Growth Strategy over the last 12 months and future plans for continued growth in the UK and Overseas. Follow by Q and A Session.
Presented by Alan O'Brien, Managing Director, Sabien Technology Group PLC
Click Here to register | | |
| | London Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | Please click on the images to view our interactive charts | | | London close: FTSE ends lower as OECD cuts UK economic forecast The FTSE 100 closed lower on Wednesday after the Organisation for Economic Co-operation and Development (OECD) cut its UK economic forecasts.
The OECD downgraded its forecast for UK growth this year to 1.7%, from the 2.2% that it estimated in February, assuming Britain votes to remain in the European Union in the 23 June referendum.
The think tank warned that a vote to leave the EU would see the UK economy suffer a "large economic shock". It said by 2020 gross domestic product could be 3% below the level it might be otherwise if it voted to remain in the EU.
In its wider assessment of the global economy the OECD said the recovery remains weak due to subdued trade and problems in emerging markets.
The OECD forecast global GDP growth of 3% in 2016, unchanged from last year, with "only a modest improvement foreseen in 2017".
Meanwhile, a poll on the EU referendum by The Times/YouGov showed that 41% support the Remain camp while 41% are in favour of leaving. It followed two polls by the Guardian/ICM on Tuesday showing the Leave camp was ahead.
The pound declined 0.52% to 1.4407 against the dollar following the latest poll.
Brexit concerns also pushed housebuilders into the red, including Taylor Wimpey, Persimmon and Barratt Developments.
In another hit to trading sentiment, oil prices dropped on the prospect of rising production from major Middle East exporters ahead of the Organization of the Petroleum Exporting Countries meeting on Thursday.
At 1653 BST, Brent crude fell 0.42% to $49.68 per barrel and West Texas Intermediate slid 0.51% to $48.85 per barrel.
Economic data
The Markit/CIPS UK manufacturing purchasing managers' index came in a little better than expected for May.
The index pushed up to 50.1 from 49.4 in April, back above the 50 mark that separates contraction from expansion and ahead of economists' expectations of a reading of 49.6.
The official China manufacturing PMI came in at 50.1 in May, unchanged from the previous month but slightly better than the reading of 50.0 economists were expecting
The official non-manufacturing PMI fell to 53.1 in May from 53.5 a month earlier.
Separately, the private Caixin China manufacturing PMI dropped to 49.2 in May from 49.4 in April, as expected, marking the 15th consecutive month of contraction. It was the lowest figure since February.
UK mortgage lending in April slowed to its lowest monthly level since August 2012, according to the latest figures from the Bank of England. Mortgage lending increased £281m compared with a £7.41bn rise in March, missing expectations of £3.8bn.
Nationwide data showed UK house price growth stagnated in May. Prices rose 0.2% on the month, in line with April's increase and worse than forecasts for a 0.3% gain. Year-on-year house prices increased 4.7% in May, slowing from April's 4.9% rise and missing estimates for a 4.8% climb.
Markit's final US manufacturing PMI came in at 50.7 in May, up from the flash estimate of 50.5 but down from 50.8 in April and pointing to the weakest performance since September 2009.
ISM's manufacturing index rose to 51.3 in May from 50.8, surprising analysts' who had pencilled in a reading of 50.4.
US construction spending recorded its biggest decline in more than five years in April, the Commerce Department revealed. Construction spending fell 1.8% in April from a month ago, missing estimates for a 0.6% increase and following a 1.5% rise in March.
Companies
Halfords shares declined as the company revealed full year numbers were largely flat but ahead of market expectations.
Wolseley plunged as it reported its third quarter results and said recent revenue growth trends "have been weaker and we have continued to manage costs and productivity very carefully" amid a challenging market.
Tesco shares jumped as Kantar Woldpanel data for the 12 weeks to 22 May showed the supermarket's market share rebound to 28.3% from 28.0% a month ago while its sales performance beat the UK's three other major supermarkets in the Big Four.
Shire gained on the back of positive broker recommendations the week after its £22bn takeover of Baxalta was approved by shareholders. |
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| Market Movers
FTSE 100 (UKX) 6,184.56 -0.74%
FTSE 250 (MCX) 17,046.04 -0.81%
techMARK (TASX) 3,109.11 -0.23%
FTSE 100 - Risers
Shire Plc (SHP) 4,380.00p 2.82%
Fresnillo (FRES) 1,032.00p 2.28%
Mediclinic International (MDC) 881.50p 1.73%
Pearson (PSON) 848.00p 1.13%
Tesco (TSCO) 166.95p 1.12%
Unilever (ULVR) 3,177.50p 1.00%
Relx plc (REL) 1,261.00p 0.88%
BAE Systems (BA.) 487.70p 0.85%
DCC (DCC) 6,340.00p 0.79%
Randgold Resources Ltd. (RRS) 5,845.00p 0.78%
FTSE 100 - Fallers
Wolseley (WOS) 3,828.00p -5.50%
Sainsbury (J) (SBRY) 256.90p -4.32%
Rio Tinto (RIO) 1,868.00p -3.84%
Taylor Wimpey (TW.) 197.70p -3.75%
Persimmon (PSN) 2,035.00p -3.19%
Barratt Developments (BDEV) 573.50p -3.13%
Antofagasta (ANTO) 415.70p -3.10%
Berkeley Group Holdings (The) (BKG) 3,180.00p -2.90%
Travis Perkins (TPK) 1,868.00p -2.86%
Royal Bank of Scotland Group (RBS) 239.60p -2.80%
FTSE 250 - Risers
Centamin (DI) (CEY) 98.85p 2.59%
Melrose Industries (MRO) 394.00p 2.52%
Euromoney Institutional Investor (ERM) 930.00p 2.20%
Berendsen (BRSN) 1,234.00p 2.15%
Polymetal International (POLY) 828.00p 2.10%
Evraz (EVR) 113.00p 1.80%
Clarkson (CKN) 2,294.00p 1.77%
Templeton Emerging Markets Inv Trust (TEM) 454.70p 1.72%
Polypipe Group (PLP) 323.70p 1.70%
Acacia Mining (ACA) 310.50p 1.64%
FTSE 250 - Fallers
Halfords Group (HFD) 408.30p -6.91%
Restaurant Group (RTN) 346.10p -5.49%
Thomas Cook Group (TCG) 73.00p -4.45%
LondonMetric Property (LMP) 157.20p -4.44%
Millennium & Copthorne Hotels (MLC) 419.50p -4.38%
Lookers (LOOK) 143.20p -4.34%
Debenhams (DEB) 70.80p -4.26%
Jimmy Choo (CHOO) 114.90p -4.25%
Entertainment One Limited (ETO) 178.00p -3.84% |
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| | Europe Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  | | | | | | Europe close: Stocks get off to weak start in June European stocks got off to a weak start in June amid mixed Chinese data, a warning from the OECD, lower oil prices and caution ahead of some key events.
The benchmark DJ Stoxx Europe 600 index finished 0.96% or 3.33 points lower to 344.12, Germany's DAX surrendered 0.57% to end the day at 10,204.44 and France's CAC 40 was off 0.67% to 4,475.39.
At the same time, oil prices retreated ahead of weekly US crude inventory data and Thursday's OPEC meeting. West Texas Intermediate drifted down 0.29% to $48.96 a barrel while Brent crude was 0.02% higher at $49.91.
"Don't get hung up on this meeting though - there will be no production cuts announced, let alone agreed upon, and there's little else to be gleaned from OPEC these days in terms of indications of future pricing for oil," said Accendo Markets' Mike van Dulken.
"Better to concentrate on the global growth outlook and risk appetite, and oil's correlation with stock indices. In that sense, keep an eye on the USD and the US equity markets ahead of the FOMC mid-month."
Investors were awaiting some key events this week, with the OPEC meeting and the European Central Bank rate announcement due on Thursday and the US non-farm payrolls report on Friday. They were also looking a little further ahead.
"June brings some of the most critical market events of the year. The Federal Reserve decision on 15th June is potentially a key risk for global markets, followed by the EU referendum vote on the 23rd, which has huge ramifications for the UK and Europe," said Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor.
"With uncertainty about both the Fed and EU referendum increasing and oil prices falling for a fourth day, investors have become more cautious, with European equity markets weaker as investors struggle to find reasons to invest."
China's official manufacturing purchasing managers' index printed at 50.1 in May, unchanged from the previous month.
However, the Caixin manufacturing PMI remained below the 50.0 that separates contraction from expansion for the 15th straight month, dropping to 49.2 in May from 49.4 in April.
China's official non-manufacturing PMI fell to 53.1 in May from 53.5 in April, according to the National Bureau of Statistics said.
Markit's final Eurozone manufacturing purchasing managers' index came in at 51.5 in May, in line with the flash estimate but down a touch from April's 51.7.
This marked the second weakest reading since February 2015 as inflows of new business from both domestic and export markets continued to rise at lacklustre rates.
Meanwhile, a warning from the Organisation for Economic Cooperation and Development undermined sentiment on Wednesday, after it said that a vote by Britain to the leave the European Union could have "substantial negative consequences" for the UK and the global economy.
In corporate news, Elekta shares slid after the Swedish care company reported weaker-than-expected first-quarter earnings.
RSA Insurance edged higher after announcing the completion of the sale of its operations in Mexico.
FTSE 100 building materials supplier Wolseley was under the cosh after it said in a third quarter trading update that recent revenue growth trends have been weaker. |
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| | US Market Report | | US open: Stocks fall as OECD lower US economic forecast US stocks fell on Wednesday as oil prices dipped and the Organisation for Economic Co-operation and Development (OECD) lowered its US economic forecast.
At 1541 BST, the Dow Jones Industrial Average shed 0.46%, the S&P 500 lost 0.31% and the Nasdaq declined 0.15%.
Oil prices were lower on the prospect of rising production from major Middle East exporters ahead of the Organization of the Petroleum Exporting Countries meeting on Thursday.
West Texas Intermediate crude dropped 2.0% to $48.13 per barrel and Brent fell 1.7% to $49.02 per barrel at 1544 BST.
In its latest economic outlook, the OECD cut its forecast for US gross domestic product to 1.8% this year, compared to an estimate of 2.5% in November. GDP rose 2.4% last year.
In its wider assessment of the global economy the OECD said the recovery remains weak due to subdued trade and problems in emerging markets.
The OECD forecast global GDP growth of 3% in 2016, unchanged from last year, with "only a modest improvement foreseen in 2017".
Meanwhile, better-than-expected US manufacturing data failed to lift spirits. Markit's final US manufacturing purchasing managers' index came in at 50.7 in May, up from the flash estimate of 50.5 but down from 50.8 in April and pointing to the weakest performance since September 2009. A reading above 50 signals an expansion in sector activity while a level below that indicates a contraction.
ISM's manufacturing index rose to 51.3 in May from 50.8, surprising analysts' who had pencilled in a reading of 50.4.
US construction spending recorded its biggest decline in more than five years in April, the Commerce Department revealed. Construction spending fell 1.8% in April from a month ago, missing estimates for a 0.6% increase and following a 1.5% rise in March.
Elsewhere, the official China manufacturing PMI came in at 50.1 in May, unchanged from the previous month but slightly better than the reading of 50.0 economists were expecting
The official non-manufacturing PMI fell to 53.1 in May from 53.5 a month earlier.
The private Caixin China manufacturing PMI dropped to 49.2 in May from 49.4 in April, as expected, marking the 15th consecutive month of contraction. It was the lowest figure since February.
In corporate news, Under Armour was in the red after the sportswear maker cut its outlook for the year.
Michael Kors rallied after reporting fourth quarter revenue that beat analysts' estimates.
Vera Bradley edged lower as it reported a 6.7% decline in quarterly same-store sales, blaming a drop in e-commerce sales. |
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| | Broker Tips | | Broker tips: De La Rue, Prudential, Royal Mail De La Rue's shares fell on Wednesday after Numis cut its rating on the stock to 'hold' from 'add but raised its target to 580p from 563p.
The banknote printer last week reported its full year financial statement, which included two sets of results before and after the disposal of the Cash Processing Solutions (CPS) business on 22 May.
De La Rue had announced it sold CPS to Privet Capital for £3.6m the day before the full year results were published on Tuesday.
Before the disposal underlying pre-tax profit for the year to 26 March 2016 fell 13% to £50.5m and underlying operating profit dropped 10% to £62.5m due to the loss of £7.9m in CPS. Revenues rose 3% to £488.2m
On a continuing operations basis, group revenue was up 7% to £454.5m, underlying operating profit increased by 2% to £70.4m and underlying profit before tax was up 2% to £58.5m.
Chief executive Martin Sutherland said the company had made good progress on its five-year strategic plan to transform into the business into a technology-led security product and service product.
"We have reorganised the business structure, increased investment in product development and new technologies, and successfully completed a manufacturing footprint review," he said.
The manufacturing footprint review concluded that the company could achieve more than £13m of annual savings from fiscal year 2018-19 by reducing the number of print lines and consolidating banknote production into four centres. The group said it will reduce banknote print production capacity from eight billion to six billion notes a year, matching current and long term average market demand.
"Some rare good news here of late with the favourable 13 April update and the CEO delivering in terms of his promise if necessary to sell/close CPS," said Numis analyst Charles Pick.
"We also like the good start to the new strategy execution. However, there are negatives too: pre-tax profit could be -16.9% this full year before rebounding as cost savings from the manufacturing footprint review mount."
Pick said reasons for caution in this current fiscal year include: the boost to last year's fourth quarter results from atypically long production runs for banknotes with low wastage rates; the high margin security features contract that ended last December; and the possibility that earnings before interest and tax at Identity Solutions could be lower year-on-year.
"It is also probable that net debt will now trend higher, given extra capex and other costs for the manufacturing footprint review. This said, the CEO is a man with a definite plan and a strategy that looks likely to revitalise De La Rue, whilst by full year 2018/19 pre-tax profit ought to considerably surpass the 2015/16 outturn and upgraded free cash flow should enable some pay down then of net debt."
Societe Generale has downgraded Prudential to a 'hold' rating from its previous 'buy' due to pressure on the investment and savings group's earnings from tougher conditions in Asia and the US.
Cutting its 12-month price target to 1,400p from 1,900p, SocGen said Pru's US franchise is under increasing pressure in its annuity market.
Firstly, as most of its variable annuity (VA) products carry equity return guarantees of around 5-6%, these are being uncovered by weak equity markets.
Giving an example of the growing risk, SocGen noted that the net amount at risk (NAR) for these products reported in SEC returns tripled to £8.6bn in 2015 - 75% of tangible book value - from £2.6bn in 2014.
"This isn't an immediate threat to earnings or solvency since only some 7% of these guarantees can be cashed in annually, but if US equities continue to underperform, this could quickly become a serious challenge."
Furthermore, sales across the whole VA market are expected to come under pressure from the Department of Labor's (DOL) Fiduciary Rule, which changes how financial advisers can counsel clients on retirement assets.
In Asia, SocGen expects Pru's booming sales in Hong Kong to slow as the inflows from mainland Chinese moderate.
"Given the dull sales growth currently being experienced in Prus other key Asian territories, this means that there is likely to be a significant overall slowdown in Asian growth."
As a result analysts cut their IFRS earnings growth forecasts by 3% to 118p in 2016, by 8% to 126p in 2017, and by 12% to 134p in 2018, reducing growth to single-digits over the next five years.
"We regard this as optimistic and emphasise that earnings risks remain to the downside if US equity markets underperform."
Analysts at Credit Suisse hiked their target on shares of Royal Mail based on their expectation that the firm´s management would be successful in finding the necessary efficiency gains to keep earnings flat.
In a research report dated 31 May, analysts Neil Glynn and Julia Pennington also referenced Royal Mail´s strong finish to its last financial year and how the company appeared increasingly comfortable with the competitive landscape in the market for parcels delivery.
On the basis of the above, they now estimated earnings before interest and taxes (before transformation costs) would reach in between £729m and £748m over the three fiscal years to the end of 2019.
However, whereas the analysts judged that financial markets were now more comfortable with the shares´ 14.5% outperformance versus the Footsie in the last three months, they added they were "wary of potential M&A expectations building".
It would be difficult for a tie-up with PostNL to deliver value and the ownership structures at key competitors were a hurdle to possible transactions (DPD owned by La Poste, Hermes by otto group, Yodel 5%-owned by Amazon, and TNT owned by Fedex), Glynn and Pennington said.
Further parcel consolidation, on the other hand, especially in the fragmented UK market, would be helpful, they added.
Credit Suisse raised its target on the shares by 11% to 559p, representing a 30% discount to DP DHL in terms of their relative EV/EBITDA multiples (enterprise value-to-earnings before interest, taxed, depreciation and amortisation).
Nevertheless, Royal Mail´s three-year average free cash flow yield was a less attractive 5.4% as a result of the cash requirements that restructuring efforts would entail, the broker said.
Credit Suisse kept its recommendation at 'neutral'. | | |
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