| | | | | | | The Top 10 Stocks for 2018 What does the year hold for these 10 blue chips? A look at some of the key themes in the coming 12-months, the key numbers from 2017, FTSE 100 companies that reached record highs… and those that fell to all-time lows, and our Top Stock Picks for 2018. Losses can exceed deposits. Get your copy. | | |
| | London Market Report |  | | FTSE 100 | Euronext | Dax perf | CAC 40 |  |  |  |  | | Please click on the images to view our interactive charts | | | London close: FTSE ends down for January as housebuilders and Capita drag London stocks extended their losses on Wednesday, finishing down for the month amid weakness in the housebuilding sector and wider sector concerns sparked by a profit warning from business services outsourcer Capita. The FTSE 100 gave up 54.4 points or 0.7% to finish on 7,533.55, meaning the London blue chip benchmark gave up its record mid-month highs to lose 60 points or 0.79% over the month of January. The rising pound has been one of the chief reasons, with sterling adding 0.38% against the dollar to 1.4195 on Wednesday and recovering from an earlier 0.4% deficit versus the euro to make a small late gain at 1.1419 despite further gloomy Brexit reports and mixed eurozone data. "In London the initial rally was given up without much of a fight, and again one of the chief culprits is sterling strength," said Chris Beauchamp, chief market analyst at IG. "Almost half the rally from the December lows of 7300 has been given back, and while the selling may continue for a few days more, there are bound to be more than a few bargain hunters sniffing around the index." "While the Fed meeting tonight is not expected to provide much in the way of surprises, the busy calendar from tonight until Friday means that most investors have little reason to chase the dip in US equities. Better to wait until the storm of activity, which also includes earnings from the tech giants, has passed over." Analyst Connor Campbell at Spreadex said there were a few reasons for the FTSE's woes, including Capita's Carillion-esque collapse sparking wider concern about the outsourcing sector; the housebuilders have baulked at reports that the government will push forward with a "use it or lose it" approach to land banking later in the year; as well as the higher pound. There was also a dent to sentiment in the City of London after reports that lobbying efforts to the EU to allow the sector to retain financial passporting rights post-Brexit were coming to nought. On Wednesday several diplomats continued to brief that these rights would end on Brexit day in 2019. Market participants were also mulling over a consumer sentiment survey released overnight. GfK's consumer confidence index rose four points to -9 in January, beating expectations for the reading to be unchanged at -13. Joe Staton, head of market dynamics at GfK, said: "Having survived Christmas, New Year, the January Sales and Blue Monday, bullish Brits report a more upbeat view of their financial prospects for 2018 this month. From expectations for their personal financial situation to the outlook for the UK economy and major purchase index, we are reporting a rebound in levels of optimism across the board after two years of the overall index score sitting at zero or in negative territory." The market's main focus of the day will come after the UK exchange closes, when the Fed makes it rate announcement at 1900 GMT. Although the meeting itself isn't expected to contain many surprises, it will be Janet Yellen's last as Chair as she passes the baton to Jerome Powell. Markets are currently pricing more than 90% probability of another 25 basis point hike at the March meeting. Looking at individual stocks, housebuilders Persimmon, Barratt Developments, Taylor Wimpey and Berkeley Group were all firmly in the red following a report in The Times that property developers are set to lose planning permission on unused land if they fail to hit construction targets under moves to kickstart housebuilding. Their fall was put in the shade as Capita tumbled more than 47% after it announced it would carry out a rights issue this year, was shelving its dividend plans and warned over its 2018 profit. Peers Mitie and Serco both lost ground. Marks & Spencer was lower after it announced plans to close another eight stores in a move that will affect 468 jobs. FTSE 250 soft drinks maker Britvic was in the red after it said first-quarter revenue rose 3.3%, although on an organic basis excluding the acquisition of Bela Ischia, it was up a more modest 0.7%. The group also highlighted uncertainty from the introduction of the soft drinks levy. Budget airline Wizz Air flew lower as it net profit guidance of between €265m and €280m for 2018 fell short of analysts' expectations. On the upside, Johnson Matthey was the standout gainer after announcing that Cummins was buying its UK automotive battery systems business, a subsidiary specialising in high-voltage automotive grade battery systems for electric and hybrid vehicles. As part of the acquisition, Cummins and Johnson Matthey also agreed to collaborate on the development of high energy battery materials for commercial heavy duty applications. SSE rallied as it upgraded its estimate for annual earnings and reported progress in delivery of operations and returns from long-term investments. Rolls-Royce was revved up after luring Tom Bell back from Boeing to lead its enlarged defence business in a further shake-up at the aerospace group. He will replace Chris Cholerton as president of defence as Cholerton moves across to head the civil aerospace division. Dairy Crest advanced after saying that revenue in the nine months to the end of December 2017 was "well ahead" of the previous year thanks to a strong performance from its key brands while Polypiperose after saying it has as entered into exclusive negotiations to sell its French operations. Paddy Power was boosted by an upgrade to 'buy' at Investec, while Softcat was lifted by an upgrade to 'hold' at the same outfit and Informa was higher after an upgrade to 'buy' at Panmure Gordon and a positive note from Morgan Stanley. TalkTalk was knocked sharply by a downgrade from Exane BNP Paribas, while Tullow Oil gushed lower after a downgrade to 'hold' at Canaccord and Micro Focus was hit by a downgrade to 'sell' at Investec. SSP was trading down after being cut to 'sell' at Goldman Sachs and Hargreaves Lansdown slipped after a downgrade to 'underperform' at Credit Suisse. |
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| | US Market Report | | US open: Stocks bounce back ahead of Fed announcement US stocks rose in early trade on Wednesday following two days of heavy losses as investors sifted through corporate news and encouraging economic data ahead of the Federal Reserve’s latest policy announcement. At 1520, the Dow Jones Industrial Average was up 0.9% at 26,398.42, the S&P 500 was 0.5% firmer at 2,836.26 and the Nasdaq was up 0.6% to 7,444.57. The Fed statement is due at 1900 GMT. Although the meeting itself isn't expected to contain many surprises following the rate hike in December, it will be Janet Yellen's last as Chair as she passes the baton to Jerome Powell. Markets are currently pricing in more than 90% probability of another 25 basis point hike at the March meeting. Oanda analyst Craig Erlam said: "The Fed monetary policy meeting will be the first of the new year and the last under the leadership of Janet Yellen, who will be replaced as Chair by Jerome Powell. Bearing that - and the fact that the central bank raised interest rates at the last meeting in December - in mind, we're not expecting any changes today, but we may get some insight into whether the new tax reforms have altered the views of policy makers. "Of course, in the absence of a press conference with the Fed Chair, we'll have to rely on the accompanying statement to provide fresh insight, at least until the minutes are released in a few weeks. A slight change in the statement can get quite a reaction in the markets though so traders as ever will be looking for any signs that future rate hikes are under-priced, given the recent changes." On the corporate front, chip maker Advanced Micro Devices rallied following better-than-expected quarterly earnings late on Tuesday, while video game producer Electronic Arts surged as its quarterly revenue came in ahead of analysts' forecasts. Boeing was also a high riser on the back of solid quarterly earnings and an upbeat outlook, while Broadcom gained after a better-than-expected earnings outlook. Cummins racked up healthy gains after agreeing to buy London-listed Johnson Matthey's UK automotive battery systems business, which specialises in high-voltage automotive grade battery systems for electric and hybrid vehicles. Housebuilder D.R. Horton was in the black after posting better-than-expected profit and revenue for the first quarter. On the downside, Eli Lilly fell despite better-than-expected fourth-quarter earnings. With the non-farm payrolls report due at the end of the week, all eyes were on the latest ADP employment report, which showed private sector employment in the US grew in January. Employers added 234,000 jobs, beating expectations for a 185,000 increase. Meanwhile, private payrolls gains for December were revised down to 242,000 from 250,000. Small businesses with fewer than 50 employees accounted for 58,000 of the jobs added to the economy, while medium-sized businesses with between 50 and 499 members of staff added 91,000 jobs and large businesses accounted for an extra 85,000. The goods-producing sector added 22,000 jobs, while the services sector added 212,000. Meanwhile, the Chicago purchasing managers' index slipped less than expected in January. The PMI fell to 65.7 from a revised 67.8 in December, beating expectations for a reading of 64.1. Elsewhere, data from the National Association of Realtors showed US pending home sales rose 0.5% in December to a reading of 110.1, marking their highest level since March and surpassing expectations of a 0.4% increase. |
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| | Broker Tips | | Broker tips: Hargreaves Lansdown, TalkTalk, SSP, Tullow Oil Credit Suisse analysts warned that while Hargreaves Lansdown offers the prospect of healthy growth over the next few years, the risk of disappointment was too great. As a result, they downgraded the company to 'underperform' from 'neutral' despite increasing their target to 1,730p from 1,124p. Trading at 29 times Credit Suisse's earnings estimate for 2019, Hargreaves' valuation is simply too high despite being a "great business", the analysts said. After the shares rose 50% from early July the valuation assumes continued strong asset growth, steadily rising markets and relatively stable fee margins. At this point in the cycle the risk to one of these factors is high, Credit Suisse said. In addition, Hargreaves faces three significant risks to its business. First, the Financial Conduct Authority's study of asset managers could be tougher than the market expects. Second, US tracker fund giant Vanguard's UK launch could put pressure on fee margins. And third, Hargreaves' new active savings product could attract higher capital requirements, limiting its ability to pay out cash to investors. TalkTalk took a tumble as Exane BNP Paribas slashed its price target on the stock by 35% to 90p, saying the company's commercial recovery looks set to stall this year, as it reduced its subscriber, revenue and EBITDA estimates and said it expects a dividend cut. The bank said growth in the discount market has been a positive driver behind the group's recent commercial improvement, but this is likely to be short-lived as other operators are making bigger inroads into their value niche. Exane cut its mid-term TalkTalk retail subscriber estimates by around 4%, resulting in medium-term revenue cuts of 1-2%. In turn, this translates into EBITDA cuts of around 3% for FY19, 6% for FY20 and 11% for FY21. Its revised estimates broadly call for flat adjusted EBITDA of between £265m and £270m over the next four years. TalkTalk's current guidance for FY18 is for EBITDA towards the lower end of guidance of £270m to £300m. Given its "increasingly bearish" view of TalkTalk's financials and recent questions raised over the balance sheet, the bank now expects a 50% reduction in the dividend. It still assumes the FY18 guidance for 7.5p per share will be paid, but now sees a 50% cut in this dividend to 3.75p for FY19 and beyond. It expects to hear about this at the FY18 results. Goldman Sachs downgraded SSP, an operator of food and beverage outlets, to 'sell' from 'neutral' but lifted the price target to 575p from 535p. The bank said SSP trades at a premium to leisure peers, concessions and contract caterers, and while the company's historical execution has been strong, it does not expect growth rates to pick up to levels that would justify this premium valuation. It said the current valuation implies an acceleration in earnings growth to over 30%, which it does not think is likely given an inflationary cost environment and headwinds to profit, as SSP starts refurbishments at Chicago airport. The new target of 575p implies 10% downside potential, hence the rating downgrade. "Should the company outperform our expectations on cost efficiency (and hence profitability), we would need to revisit the outlook and our view. Additionally, and aside from company-specific factors, stronger travel trends or a faster pace of outsourcing would encourage us to take a more positive view on the broader sector, and SSP as a result." Canaccord Genuity revised its stance on Tullow Oil from 'buy' to 'hold', cutting its target from 250p to 220p following reports the company may not hold quite as much recoverable oil at its Kenyan asset as previously believed. Tullow has for some time estimated gross 'mean' discovered resources at its asset in the South Lokichar Basin, in which it holds a 50% stake, to be around 750m barrels of oil with an estimated basin potential of 1bn barrels. However, Canaccord said recent reports from Kenya seem to suggest there may be a "downside risk to these figures", citing one article published on Tuesday in Standard Media that claimed there was potentially just 250m barrels of recoverable resources, a figure which would raise doubts over the project's commerciality. Canaccord said: "Bearing in mind these comments, we revise our base case gross Kenyan recovery to 500mmbbls gross (from 750mmbbls), and given the likely extended timelines we delay our assumed first oil by 12 months to mid-2023." | | | | To advertise in the Euro Markets Bulletin please contact advertise@advfn.com |
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