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"Yesterday’s Macron-led rally was short lived. Disappointing Chinese industrial production and trade figures, suggesting monthly commodity imports fell as much as 10% below best expectations, resulted in another hard hit on heavyweight miners with base minerals suppliers like Anglo American (AAL.L) and Antofagasta (ANTO.L) falling more than 2%. The FTSE-100 still managed to eke out a modest gain, however, supported by demand for consumer stocks like M&S (MKS.L) and Kingfisher (KGF.L), while energy supplier Centrica (CNA.L) also pleasantly surprised investors by confirming expectations for the full year will still meet targets set at the time of its February preliminaries, despite wide expectations that the Tories’ forthcoming manifesto will contain proposals to impose price-cap protection for residential users; SSE (SSE.L) rode up on its coat tails. Profit taking ensured the STOXX 600 closed in the red, with the CAC40 not surprisingly the principal casualty after recent gains, while the Xetra Dax followed behind as the recently strengthened Euro met pressure from analysts warning the currency will face further political risks in coming months, including June’s French parliamentary elections, September’s Federal Election in Germany and Italian elections, which must be held by May 2018 and could also see anti-euro candidates gain ground in a country beset by economic problems. Not that the CBOE Volatility Index, the ‘fear gauge’ or VIX, would tell you as much, having fallen to its lowest point in over two decades yesterday. The three principal US indices all closed with just fractional gains in their final trading minutes yesterday evening, having spent much of the fluctuating session swinging from new record highs for both the S&P500 and NASDAQ into modest losses, albeit finding support from technology shares, like Apple which notched-up a fresh all-time peak, and luxury plays, like Coach which acquired handbag maker Kate Spade. Most Asian equities made just modest moves, although Taiwan’s Taiex briefly broke through 10000 for the first time in two years. Japan’s Nikkei eased slightly after Monday’s 2.3% jump to a 17-month high, while the Hang Seng and Shanghai Composite continued in opposite directions, although the latter pared early sharp losses resulting from disappointing macro data to end just modestly lower on the session, while the commodity-heavy ASX remained under pressure. The UK is not scheduled to release any significant macro data today, neither is the EU, although the US provides a reasonable batch, including its Redbook index for March, along with JOLTS Job Openings, Wholesale Inventories, April’s NFIB Business Optimism Index plus May’s IBD/TIPP Economic Optimism numbers; speeches are also due from the Federal Reserve bank of Boston’s President, Eric Rosengren, and the FOMC’s Robert Kaplan. UK corporates due to release earnings or trading updates include Spirax-Sarco Engineering (SPX.L), William Hill (WMH.L), Hiscox (HSX.L), Porta Communications (PTCM.L) and the CentralNic Group (CNIC.L). London is not expected to find any particular inspiration from the overnight markets, although a Bloomberg report confirming that OPEC members have still not ruled-out the option of increasing existing production cuts, or extending current measures out to the year end, was enough to rally crude prices first thing this morning, which may now carry into the European session. The FTSE-100 is seen rising between 10 and 15 points during opening trading."
– Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday’s session 0.05% higher at 7,300.86 whilst the FTSE AIM All-Share index was up 0.18% at 967.12. In continental Europe, the CAC-40 finished down 0.91% at 5,382.95 whilst the DAX was 0.18% lower at 12,694.55.
Wall Street
In New York last night, the Dow Jones rose 0.03% to 21,012.28, the S&P-500 firmed 0.0% to 2,399.38 and the Nasdaq gained 0.03% to 6,102.66.
Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.12% to 19,872.05, while the Hang Seng firmed 0.35% to 24,664.03.
Oil
In early trade today, WTI crude was up 0.06% to $46.46/bbl and Brent was up 0.1% to $49.39/bbl.
Headlines
UK house prices in first quarterly fall since 2012
UK house prices are “stagnating” and have actually fallen in the last three months, according to the Halifax. In the three months to April, prices fell by 0.2% – the first quarterly fall since November 2012. Over the past month alone, prices fell by 0.1%, the Halifax said. However, for the year to April, prices rose by 3.8%, the same figure as in March. It leaves the average cost of a house or flat at £219,649. Martin Ellis, Halifax housing economist, said one reason why prices were slowing was that property had become too expensive for many people. “Housing demand appears to have been curbed in recent months due to the deterioration in housing affordability caused by a sustained period of rapid house price growth during 2014-16,” he said. Last week rival lender Nationwide said house prices were growing at 2.6% annually – their lowest rate for four years.
Source: BBC News
Company news
Centrica (CNA.L, 202.40p) – Buy
Centrica, the energy and services company, yesterday provided year-to-date trading update. The Group confirmed that it continues to make good progress against its strategic priorities and said it is on track to achieve its FY2017 targets, subject to normal level of disruption. These includes; 1) Adjusted operating cash flow of above £2bn, 2) Group capital investment (including small acquisitions) of less than £100m each, with aggregate no more than £1bn, including E&P (Exploration & Production) capex of around £500m, 3) Incremental revenue investment of around £100m in growth areas, 4) Cost savings of £250m (as part of the Group’s £750m per annum cost efficiency programme by 2020), 5) Like-for-like direct headcount reduction of around 1,500, and 6) Period end net debt to be in the £2.5-£3.0bn range. Centrica is scheduled to announce its interim results on 1 August 2017.
Our view: Centrica confirmed that it is on track to deliver both financial and operational targets for the FY2017, despite the warmer than normal weather in the UK and North America as well as fall in prices of UK wholesale oil, gas and baseload power. The Group’s cost efficiency programme is progressing well, having delivered savings of £384m in FY2016, demonstrating strength of its underlying performance. Centrica’s share price has fallen by nearly -10% since last month as investors remain concerned over potential price cap on the standard rate energy bills by the UK Government (Conservative Party’s manifesto). According to The Telegraph’s article published on 6 May 2017, it has warned that if the price cap goes ahead, it could reduce the Group’s profits by £150m to £200m which could consequently impact its credit rating unless its current dividend policy is revised. Amid building concern, Centrica’s management has said in its statement that “Evidence from other countries would suggest this [price regulation] will lead to reduced competition and choice, and potentially higher average prices” while also said it has had a “regular and constructive dialogue with the Government and have proposed alternative ways to improve the market further and address their concerns, without resorting to price regulation”. Whilst Theresa May yesterday, again reiterated her strong willingness to introduce a price cap and this continues to create uncertainty ahead, the Group’s Share price is now around 5 years low. The historical chart on the other hand shows the share price is set to bounce after hitting the bottom of around 183p-200p. The Shares are valued at FY2017E and FY2018E P/E multiple of 12.3x and 11.5x along with dividend yield of 6.2% and 6.1%, respectively. Given the Group’s positive progress to date with its confidence towards unchanged outlook, Beaufort reiterates its Buy rating on the Shares, while keeping close eyes on the Conservative government’s general election manifesto.
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Compiled by:
Barry Gibb, Kazunaga Senga, Sheldon Modeland, Charles Long & Ben Maitland
(t) +44 (0) 207 382 8384
(e) [email protected]
Weekly diary
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Recommendations
During the three months to end-April 2017, the number of stocks on which Beaufort Securities published recommendations was 216, and the recommendations were as follows: Buy – 73; Speculative Buy – 118; Hold – 22; Sell – 3.
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