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| | London Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | Please click on the images to view our interactive charts | | | London close: FTSE higher ahead of Trump's tax reform unveiling Stocks in London ended Wednesday on a positive note ahead of US President Donald Trump's big unveiling of his much-anticipated tax reform proposals.
The White House has mooted a variety of tax cuts, among them slashing the corporate income tax rate from 35% to 15%, but the fine grain and budget detail on this remained outstanding.
The FTSE 100 closed up 0.18% to 7,288.72, and the FTSE 250 ended the day higher by 0.49% to 19,678.82. Wall St was making minor gains in early deals, with Europe generally a little ahead.
"A feeling of anticipation has gripped financial markets today as investors prepare for Trump's big announcement clarifying how and when his 'phenomenal' tax reforms will play out," said FXTM research analyst Lukman Otunuga.
"Although there is the possibility of the dollar stabilising in the short - term if Trump delivers, concerns still linger over the plan being light on details."
Michael Hewson, chief market analyst at CMC Markets UK, added that indices in Europe were well supported as they attempt to build on the gains of the last two days.
He cited another record high for the FTSE 250 ahead of further details about a framework for US tax reform. Markets were also looking ahead to the European Central Bank's rate call tomorrow.
"This afternoon's comments from US Treasury Secretary Steve Mnuchin ... suggests that we'll get an aspiration list," said Hewson.
"Anything tangible will have to wait until much later in the year, meaning that we're not really that much better off than we were 24 hours ago in terms of detail."
"This probably helps explain why European stocks have remained in a holding pattern just below this week's peaks, as we look ahead to tomorrows ECB rate meeting, as well as next week's Fed meeting."
Back in London, pharmaceutical, financial, banking and property stocks on the FTSE 100 did well overall, with miners lagging the leaders.
In corporate news, emerging markets-focused bank Standard Chartered rose after reporting a near doubling of its first-quarter profits as revenue increased and loan impairments declined.
Shares of London Stock Exchange rose after saying it made a strong start to the year, with sales growth across the group apart from capital markets was hit by lower trading levels than last year.
Croda International rallied as it reported a 19% rise in first-quarter sales and kept its outlook for 2017 unchanged.
GlaxoSmithKline has reported a strong first set of quarterly results, as the drug group grew sales better than forecast, improved profit margins and kept its dividend on track.
Fresnillo was also on the back foot after a production report. Tullow Oil gushed lower after backing its oil production guidance.
Building materials group CRH firmed as it said it had a "satisfactory" start to the year, with a 4% increase in first-quarter sales as European growth offset a flat US performance.
Engineer GKN retreated after saying it had a good first quarter with organic sales growth, but warning that its growth rate may not be sustained for the full year due to tough comparators.
BHP Billiton has downgraded its full-year guidance for copper and metallurgical coal, but iron ore production was not too badly affected by Cyclone Debbie in Australia.
Antofagasta was just a touch lower after the Chilean miner reasserted its guidance for 2017 as it posted a 9.4% jump in first-quarter copper production.
Retailer Next fell after being cut to 'underperform' at Jefferies, while Severn Trent was in the red after HSBC downgraded the stock 'Reduce'. |
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| Market Movers
FTSE 100 (UKX) 7,288.72 0.18%
FTSE 250 (MCX) 19,678.82 0.49%
techMARK (TASX) 3,489.57 0.37%
FTSE 100 - Risers
Standard Chartered (STAN) 757.30p 4.01%
Croda International (CRDA) 3,797.00p 3.77%
Merlin Entertainments (MERL) 499.70p 2.90%
Hikma Pharmaceuticals (HIK) 1,943.00p 1.99%
InterContinental Hotels Group (IHG) 4,061.00p 1.91%
Prudential (PRU) 1,723.00p 1.71%
Rolls-Royce Holdings (RR.) 826.00p 1.66%
Rentokil Initial (RTO) 248.90p 1.63%
Bunzl (BNZL) 2,411.00p 1.60%
Tesco (TSCO) 180.50p 1.58%
FTSE 100 - Fallers
GlaxoSmithKline (GSK) 1,566.00p -2.06%
GKN (GKN) 359.60p -1.78%
Mediclinic International (MDC) 731.00p -1.55%
BT Group (BT.A) 310.05p -1.08%
Hammerson (HMSO) 596.50p -1.00%
Severn Trent (SVT) 2,305.00p -0.99%
Glencore (GLEN) 309.40p -0.90%
Standard Life (SL.) 365.90p -0.81%
Smurfit Kappa Group (SKG) 2,090.00p -0.71%
Anglo American (AAL) 1,115.00p -0.71%
FTSE 250 - Risers
Aggreko (AGK) 904.50p 5.67%
BTG (BTG) 675.50p 4.89%
Renishaw (RSW) 3,255.00p 3.33%
Kaz Minerals (KAZ) 479.10p 3.25%
Berendsen (BRSN) 822.00p 3.14%
Workspace Group (WKP) 870.00p 2.78%
IP Group (IPO) 141.00p 2.77%
Amec Foster Wheeler (AMFW) 576.00p 2.67%
Restaurant Group (RTN) 360.60p 2.62%
Assura (AGR) 60.85p 2.35%
FTSE 250 - Fallers
Allied Minds (ALM) 157.40p -4.61%
Acacia Mining (ACA) 391.00p -3.07%
Spire Healthcare Group (SPI) 321.60p -2.55%
Ibstock (IBST) 220.50p -2.39%
Sanne Group (SNN) 652.00p -2.18%
Dunelm Group (DNLM) 593.50p -1.66%
Kennedy Wilson Europe Real Estate (KWE) 1,070.00p -1.38%
Tullow Oil (TLW) 214.20p -1.29%
Polypipe Group (PLP) 400.70p -1.26%
Ashmore Group (ASHM) 354.00p -1.26% |
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| | US Market Report | | US open: Stocks little changed as investors eye Trump tax announcement US stocks were little changed on Wednesday as investors awaited a speech on tax reform by President Donald Trump.
At 1543 BST, the Dow Jones Industrial Average rose 0.12% to 21,021.88 and the S&P 500 was up 0.14% to 2,391.93. The Nasdaq was flat at 6,023.35 after it breached the 6,000 mark on Tuesday.
Meanwhile, West Texas Intermediate was down 0.85% to $49.14 a barrel and Brent crude was off 0.94% to $51.61.
In currency markets, the dollar was flat against the pound at 0.7793, rose 0.32% versus the euro to 0.9181 and was up 0.37% against the yen to 111.50.
Trump tweeted on Saturday that his administration was set to make a big announcement on tax mid-week, after telling the Associated Press a day earlier that his proposal would contain a "massive tax cut" for businesses and individuals.
Treasury secretary Steven Mnuchin confirmed that Trump's announcement on Wednesday afternoon will call for corporation tax to be cut to 15% from 35%. He said that it would be "the biggest tax cut and the largest reform in the history of our country".
During the campaign when Trump floated the tax cut analysts said that it would enlarge the country's deficit.
Russ Mould, investment director at AJ Bell, said that it is unclear whether any of Trump's proposals will pass through Congress unmolested, especially as the November 2015 Bipartisan Budget Act, which suspended America's debt ceiling, lapsed on 15 March.
Mould said Trump has a lot less room for manoeuvre than Ronald Reagan, to whom he is regularly compared for his tax-cutting and deregulating zeal, as Trump has taken control at a time when interest rates and inflation are rising, federal debt stands at nearly $20trn, a record high, or 105% of GDP, US stocks look expensive after an eight-year bull run, and US corporations are already paying historically low tax.
US companies' tax bills represented just 7.5% of pre-tax profit and 3.4% of sales in 2016, according to Federal Reserve data.
Mould said that a tax cut to 15% would likely add 1.5 percentage points to corporate profit margins, using that 3.4% tax paid-to-sales ratio as the starting point and on a total company sales base of $15.6trn, the equivalent to around $225bn, or 13% of the aggregate post-tax profits made by corporate America in 2016.
"This is the profit uplift that the Wall Street lemmings are clearly seeking, but the S&P 500 is already up 11% since Trump's election, while it remains to be seen whether such a windfall is landed, given likely opposition in Washington and how American corporations' tax affairs already seem to be run very efficiently," he said.
In corporate news, Twitter surged 10.44% after it posted better-than-expected earnings and revenues with user growth exceeding forecasts.
Health insurer Anthem rose 2.86% after it said first-quarter profit rose 44%, while PepsiCo fell 1.82% after it reported a 42% increase in first-quarter profit.
Procter and Gamble was down 1.7% after posting disappointing sales due to slow consumer spending, while Hershey fell 1.32% after the chocolate and sweets maker topped profit forecasts, but revenue fell short.
Boeing dipped 1.41% after better-than-expected earnings but weaker-than-forecast revenue and United Technologies was up 0.42% after posting a 17.8% rise in quarterly profit. |
| | Broker Tips | | Broker tips: Bellway, Savills, Merlin Entertainments, Sky, oil companies, Severn Trent Peel Hunt upgraded Bellway to 'add' from 'hold' and went the other way on Savills as it took a look at UK housebuilders and estate agents.
Peel said it remains positive about the outlook for London-listed housebuilders and their share prices. As far as estate agents are concerned, it said the traditional players are faced with low market volumes and a structural shift towards different formats.
The brokerage lifted its price target on Bellway to 3,145p from 2.925p, noting the stock has delivered a pre-tax profit compound annual growth rate of around 53% over the last three years, compared to a sector average of 33%.
"Looking ahead, with a steady economic backdrop, new outlet openings should drive volumes and profits higher again," it said, adding that it forecasts average net asset value growth and a dividend yield of around 19% over the next two years.
Peel said Savills' results for 2016 were better than expected, aided in part by FX and better results in Asia and the UK than anticipated. The brokerage upped its price target on the stock to 910p from 750p to reflect higher forecasts and the rolling forward of its multiples to June 2018.
However, it said the shares don't offer much value after a strong run in the last few months, hence the downgrade.
Peel Hunt said buy-rated Berkeley Group was one of its top picks. Concerns about London will probably limit the stock's short-term performance, but the brokerage said it remains confident there is "great" long-term value in the current share price.
More broadly, Peel said investors should watch out for the election, which will bring with it new manifestos and therefore promises about housing supply and other issues from the mainstream parties.
"While manifestos promises are frequently ignored or diluted, they should give more evidence of the direction of travel on political attitudes towards the housing market."
Merlin Entertainments
The plan by Merlin Entertainments to add hotels to their theme parks is underappreciated by the market, said Morgan Stanley on Wednesday as it set a bullish share price target for the years ahead.
Adding hotels to theme parks increases the visitor catchment area, revenue visibility, ancillary revenues, trading periods and guest satisfaction, Morgan Stanley gushed, with themed hotels such as Lego rooms at its Legoland parks providing an "immersive" family experiences and premium revenues.
Its analysis suggests around £450 revenue per room per night, which is three to four times higher than the market average, with management's ambitious target to increase the current 3,600 rooms by 2,000 by 2020.
With an average of 400 at its large parks being well short of the 1,000 at some competitors, Morgan Stanley sees 7,000 rooms by 2022, with hotels growing to 30% of adjusted operating profits, adding 5% to the annual group number.
Analysts calculated that earnings per share, which came in at 19.56p and are forecast at 22p for 2017, with continuing strong London hotel and visitor statistics expected to help Midway performance this year, could reach 50p by 2022.
A target of 580p was set, with the bull case putting a 1,000p share price based on a forward multiple of around 20 times.
Sky
Jefferies has upgraded Sky to 'buy' from 'hold' and hiked its price target to 1,200p from 1,050p as it believes the broadcaster is "materially" undervalued with or without the potential £11.7bn merger with Fox.
Sky is currently trading between 9-10% below the Fox offer recommended last December, and while this suggests there would be a risk of the deal failing, Jefferies believes that UK approval prospects are favourable.
The broker said this supports its new 1,200p target and suggests that shareholders could hold out for a better offer.
Ofcom's wholesale local access consultation proposed tough charge controls on BT's Openreach, creating a potential £130-140m saving for Sky by 2020/21. Narrowing costs of wholesale access to fibre and digital subscriber line will also enable Sky to re-focus on converting TV homes to triple play.
Meanwhile, the broker said that free cash flow downgrades at BT leaves it more dependent on raising retail prices, which should benefit Sky.
Jefferies is confident that the deal will be approved by the government without remedies or referral to the Competition and Markets Authority as it does not detect appetite among competitors, Ofcom or the government to override precedents.
It said that previous public interest reviews have established four core principles: that news is the sole genre of importance in assessing plurality, plurality was sufficient after Sky acquired a 17.9% stake in ITV, there is clear distinction in scope for coordinating editorial control between instances where assets are under common ownership and common control due to material influence, and that significance can be attached to safeguards from assets being held in separate public companies with independent shareholders.
Ofcom's report on the deal has been pushed back to 20 June due to the 8 June general election, after the government said the 16 May deadline was too close to polling day.
Culture Secretary Karen Bradley has also asked the CMA to report on potential jurisdictional issues related the deal, which was cleared by the European Commission earlier this month.
Next
Jefferies downgraded retailer Next to 'underperform' from 'hold', keeping the price target at 3,500p.
The bank noted Next's share price has rallied 13% in recent weeks and warm weather aside, it reckons the company's challenge to regain its competitive edge and overcome a shift to leisure spending is as tough as ever.
Jefferies said the dividend yield of around 8% is an attraction, but it forecasts a near 20% decline in pre-tax profit for FY17-19, below consensus, hence the downgrade.
"We believe a late Easter and 'the fifth warmest March since 1910' will have helped UK clothing sales but rising inflation, weak UK consumer confidence (-6% in March) and the shift to leisure spending are offsetting factors."
Jefferies said that results from its February consumer survey showed that Next's net promoter score had fallen to 19%, below Marks & Spencer and Debenhams for the first time, and down from 32% 18 months ago.
"As a result Next has fallen from 3rd to 11th position in our NPS league table. So with planned improvements to the clothing ranges and multi-channel offer not fully coming through until Christmas and beyond, and competitors continuing to invest and improve, we expect it will take time for Next to get back on track."
Oil companies
Analysts at Canaccord Genuity highlighted the favourable prospects for junior oil explorers Rockhopper and Eland Oil&Gas.
The challenges facing Falklands-focused Roockhopper in finding a partner for its Sea Lion project should not be "underestimated", analysts Alex Brooks and Charlie Sharp said in a research note sent to clients.
Nonetheless, assigning a 10.0% 'chance-of-success', as the market currently does, is "too tough", they surmised.
Meanwhile, Eland's bedding-in of the new shipping export route means it no longer needs to rely on the Forcados terminal alone, underpinning the stock's value and reducing risk.
Both Rockhopper and Eland were upgraded to a 'Buy' the day before.
As an aside, following Delek's approach for Ithaca Energy, the analysts believe Faroe Petroleum is the "next obvious candidate".
"It seems unlikely that Delek would see Ithaca alone as providing enough North Sea scale."
Thus, within the exploration and production sector the broker says the best value lies in Rockhopper and Gulf Keystone.
Among integrateds, it still prefers BP over Total and Shell, with latter still over-indebted in their opinion.
In the services space it favours Wood Group/Amec, continues to be positive on Lamprell - owing to the potential for a recovery and Saudi upside - while Cape is "attractively valued". Canaccord also "likes" SBM Offshore as new projects get going.
Severn Trent
Analysts at HSBC downgraded their recommendation on shares of Severn Trent in view of the regulator's new push for the sector to increase its 'resilience', which in the case of Coventry-based Severn meant roughly £230m of additional capital outlays.
With the advent of the 2014 Water Act, Ofwat's chief duty will be to ensure that the companies under its remit have the ability to recover from "disruptions" and to anticipate trend changes so it can continue to maintain services and protect the natural environment.
Simply put, water companies and the regulator's overriding priority now is to avoid any potential for scarcity of water supplies on a sustainable basis.
That has important implications for Severn, which HSBC judges will not be able to continue to abstract water at the current rate, which will require up to £230m of investment in new sources.
On top of that, Severn's 'financial resilience' is less than its peers, HSBC said, "noting" the pension repair contributions announced alongside its first half numbers.
Hence, HSBC downgrades Severn from 'hold' to 'reduce' and cut its target from 2,330p to 2,200p.
Nonetheless, for the UK Water sector as a whole Ofwat's PR19 Price Review may provide an opportunity for accelerated investment by all companies, particularly Severn, which sports the largest regulated asset base to 2020, the analysts said.
As an aside, HSBC indicates that Pennon and United Utilities have "manageable" water resilience issues, with the latter especially having demonstrated both water resilience as well as high high levels of financial resilience. | | | | To advertise in the Euro Markets Bulletin please contact [email protected] |
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