AJ Bell Comments

“Bank of England Governor Mark Carney and his colleagues on the Monetary Policy Committee will not welcome this week’s latest bout of weakness in sterling or renewed strength in the oil price, as both are complicating factors when it comes to inflation, which at 3% is still running some away above the official 2% target,” comments Russ Mould, investment director at AJ Bell.

“Shareholders in both Tesco and Booker seem pleased that the regulator has provisionally cleared their £3.7 billion merger, as in early trading both stocks were right at the top of the FTSE All-Share index and that benchmark has around 640 members,” says AJ Bell Investment Director Russ Mould.

“Investors have decided to throw back their shares in Fishing Republic this morning after a disappointing trading update which reinforces two key lessons for anyone with a portfolio of stocks, whether they own this tiddler or not,” says AJ Bell Investment Director Russ Mould.

Proprietary research from AJ Bell shows that 42 members of the UK’s FTSE 100 paid a tax rate in their last financial year that came in below the UK’s then official 20% corporate rate – and although 11 paid less than 10%, conspiracy theorists are likely to be disappointed, since the global nature of their operations and legitimate tax breaks such as those for loss carry forwards or investment generally explain the difference.

“Stock markets can be terribly impatient things and the indifferent response given to Marks & Spencer’s interim results is a good example of this. The shares are down even though there are signs of improving momentum in the Clothing & Home operation and the plans outlined by Steve Rowe as part of the ‘next phase’ of his turnaround plan make sense – and a lot more sense than some of the fripperies introduced at the end of the Bolland era, such as share buybacks,” says AJ Bell Investment Director Russ Mould.

“Meagre US wage growth of just 2.4% year-on-year, despite bumper jobs growth of 261,000 for the month of October, represents a teaser for the US Federal Reserve in the short-term and investors in the long-term,” says AJ Bell Investment Director Russ Mould.

“The first Bank of England interest rate hike in over 10 years will be the only interest rate increase many people have ever seen,” comments Tom Selby, senior analyst at AJ Bell.

“The Bank of England has finally followed up on one of its heavy hints and delivered the first interest rate rise since July 2007. However, several reasons it has given for its prior inactivity remain valid, notably poor wage growth and the uncertainty created by Brexit,” says AJ Bell Investment Director Russ Mould.

“A powerful combination of higher production, higher selling prices and lower costs mean that Shell’s profits improved substantially in the third quarter and with oil bubbling up to the $61-a-barrel level there is a chance that there could be further increases to come,” says AJ Bell Investment Director Russ Mould.

A downbeat outlook for Christmas trading is weighing on Next today as the High Street bellwether’s shares slump to the bottom of the FTSE 100.

Banking stock indices are trading at or near year-highs the world over yet Barclays’ shares are languishing at their year lows, despite an apparently attractive valuation, as investors yet again ponder whether the investment banking operation is really worth the trouble at the giant bank.

After a long and painful retrenchment and restructuring process Lloyds’ preparation for next February’s Strategic Review suggests the lender’s management team is gearing up for a dash for growth but this may be precisely what a lot of its shareholders do not want, as they are looking for a safe utility bank which pays them a safe and reliable dividend. This, coupled with the company’s valuation, explains why the shares are responding so indifferently to a good set of third-quarter results.

Flat profits at Costa Coffee, a slowdown in the key hotel industry metric of revenue per available room and near-term uncertainty over both cost inflation and the UK’s near-term economic outlook are taking the steam out of Whitbread’s shares this morning.

Japan is (still) where no Western investor or central banker wants to go, at least in terms of its 25-year struggle against deflation, but a third straight General Election victory clears the way for Prime Minister Shinzō Abe to pursue the policies that he thinks can finally stoke consistent growth, aided and abetted by Bank of Japan and its Governor Haruhiko Kuroda.

There can be no doubt that the new management team at bakery-to-cakes-to-ingredients group Real Good Food have inherited a mess but today’s profit warning is a big blow, especially as it comes barely a month after the company stated that its planned capacity additions were very much on track.

Pension tax relief is once again in the firing line, this time to allegedly pay for tax breaks for younger people.

Chancellor Philip Hammond is reportedly considering radical plans to cut pension tax relief for older workers to fund a cut in National Insurance for the young.

No company can be held responsible for the impact of acts of terror or the weather upon its business and nor can investors predict such unpredictable developments either but today’s crunching share price fall at Merlin Entertainment following a profit warning which cites these very factors offers three useful lessons.

A profit warning means that GKN is the worst performer in the FTSE 100 today and although the impact of a pair of legal claims upon profits were hard to spot, the company’s accounts had given a few clues that it had very little margin for error if underlying trading took any sort of turn for the worse.

A first quarter-trading statement from Hays highlights the much stronger fee growth in evidence in Europe compared to the UK, completing the picture painted by trading updates from FTSE 250 recruitment agency peers Robert Walters and PageGroup.

Shares in orthopaedic implant and wound care specialist Smith & Nephew are surging amid (as yet unconfirmed) reports that American activist investor Elliott Management has taken a stake in the FTSE 100 firm.

“Trinity Mirror seems to be managing the decline of print circulation and advertising as well as anyone, but the share price does not seem interested and the combination of a very lowly valuation and a very high dividend yield is more likely to generate an attack of nerves than fresh interest, as shareholders in Carillion can testify,” comments Russ Mould, investment director at AJ Bell.

“A far-weaker-than-expected US non-farm payrolls figure for September may not deflect the Federal Reserve from pushing through its third interest rate in 2017 (and fifth of this cycle) as unemployment continues to creep lower and wage growth finally shows some signs of accelerating” comments Russ Mould, investment director at AJ Bell.

Shares in plumbers’ merchant Ferguson are flying to the top of the FTSE 100 leader board this morning, buoyed by a solid set of full-year figures, a 10% hike to its dividend and a new £500 million share buyback programme. But the statement from the company formerly known as Wolseley still leaves three questions answered and investors will want to get a solid grip on all three before they look to take the shares even higher.

Tesco’s shares are below where they were a year ago (despite a 6% advance in the FTSE 100 over the same period) and today’s results show why, even if investors will be delighted to see the company reinitiate dividend payments with an interim cash distribution of 1p per share.

A slight improvement in the reading from a sentiment survey of the UK’s service industries offers a little encouragement for Britain’s near-term growth prospects but it does not make the Bank of England’s job any easier as it prepares to set interest rates again on 2 November and then 14 December.

After three bail-outs in the last three years, budget airline Monarch has finally been grounded, weighed down by operational losses and leasing payments on its aircraft fleet at a time when competition between carriers remains as fierce as ever.

Shares in Carillion are slumping today as the terribly messy set of first half-numbers still leave management trying to untangle its finances and beg the question why anyone would want to bid for the company.

Whatever the rights and wrongs of the decision by Transport for London not to renew Uber’s licence, the failure by the world’s largest start-up to abide by two simple rules means it still has a long way to go to permanently win over customers, regulators and investors, whether you believe its $68 billion valuation or not.

The FTSE 100 is making heavy weather of making fresh gains and reaching new all-time highs and one possible explanation for its pedestrian progress is that earnings forecasts have stopped going up.

A third profit warning in 18 months from support services group Interserve is hammering the shares today and leaves new chief executive Debbie White with a big job on her hands – but a cursory glance at August’s interim results would have given both investors and the new boss a clear indication of the risks and challenges that lay ahead.

The Government has today published the Finance Bill 2017, containing a range of measures that will impact savers and investors.

The Office for National Statistics has today published an analysis of the changing work and retirement patterns of those aged 50 and over.

A renewed focus on customer satisfaction and providing a quality product at a fair price is already reaping dividends at Bovis, as the FTSE 250 house builder targets higher-than-expected shareholder payouts for 2017 and 2018, as well as special dividends out to 2020.

A profit warning from restaurant group Fulham Shore has knocked more than a fifth of the AIM-quoted company’s stock market valuation, as the owner of the Franco Manca and Real Greek chains joins Wildwood-owner Tasty, Richoux and Comptoir Libanais by flagging tougher trading conditions.

“Analysts and economists continue to fret about Brexit but strong full-year results from builder Redrow make it clear that people still need homes to live in, whatever the political situation,” comments Russ Mould, investment director at AJ Bell.

Bids this year for FTSE 100 firms Worldpay, Sky and Unilever, as well as mid-cap names such as Berendsen, Paysafe, Jimmy Choo, Cape, Novae and now a third attempt by France’s Schneider to strike a complex merger deal with AVEVA, all suggest that the pound’s plunge over the past year means UK-quoted companies still look attractive to potential overseas predators.

DIY specialist Kingfisher is having to reply on self-help plans and cost-cutting to meet analysts’ forecasts for the year to January, as a disappointing second-quarter trading update reveals a further deterioration in like-for-like sales growth.

The ONS has issued new analysis that looks at how private pensions are affecting the income of retired households.

The delivery of a first-half trading update that was simply no worse than expected is proving enough to take Next to the top of the FTSE 100 this morning, helped by confirmation of the retailer’s special dividend plan and a rally in the pound, as well as the absence of any further profit warning. This is not to say the results were pretty.

Shares in megabank HSBC are trading at post-financial-crisis highs, helped by a set of solid interims, an unchanged dividend and a new $2 billion share buyback scheme as the lender makes the most of buoyant conditions in Asia.

Intu’s departure from the FTSE 100 last month suggests that investors are starting to fret about how the switch to online shopping could hit the value of retail properties but strong interim results from warehouse owner SEGRO, which took Intu’s place among the UK’s corporate elite, show who is benefitting from the surge in shopping from home.

Health-to-hygiene group Reckitt Benckiser’s interims will soothe fans of the stock but may not fully persuade the sceptics that its growth prospects justify the company’s lofty valuation, especially as life-for-like sales progress remains limited and adjusted earnings figures put a flattering gloss on the first half.

The Pensions Policy Institute (PPI) has published a report setting out the importance of improving consumer engagement to support Government policy interventions such as automatic enrolment.

Former Government health adviser Sir Michael Marmot has warned life expectancy improvements in the UK have dropped drastically in recent years.

The West would be ecstatic if its economies were to suddenly start growing by nearly 7% a year but the second-quarter increase of 6.9% generated by China is the norm for the Middle Kingdom and this figure should help to reassure those who are worried that Beijing’s gathering debt mountain mean it could one day suffer a hard landing.

“Even though they are trading near four-year lows, shares in Babcock are receiving little love from investors this morning, even as the support services giant offers some reassurance on its order backlog in a brief first-quarter trading update,” says AJ Bell Investment Director Russ Mould.

The Government has confirmed all Finance Bill 2017 policies announced pre-election to start from April 2017 will be effective on that date.

Shareholders will be delighted by today’s upbeat trading statement from Barratt Developments as the FTSE 100 firm unveils better-than-expected pre-tax profits, but very modest growth in actual housing completions will be less welcome with those struggling to get onto the property ladder (and possibly the Government) as prices creep ever higher.

A profit and dividend catastrophe at Carillion, which is also prompting chief executive Richard Howson to step down after five-and-a-half years at the helm, offers useful lessons to private investors, besides a killing to some shrewd professional ones.

An early 2% fall puts M&S in amongst the worst five performers in the FTSE 100, taking the shares back to where they were in April (and still way below the 400p-a-share bid offered by Sir Philip Green, all the way back in 2004).

AJ Bell has written to Christopher Woolard, director of strategy and competition at the FCA, calling for the regulator to address the increasingly complex point of sale disclosure regime which is no longer fit for purpose.

A closing overnight price of $16.99 means shares in Snap are now trading below their $17 flotation price, as technology stocks’ valuations come under fresh scrutiny.

The Government has confirmed that it will require pension providers to give personalised risk warnings to savers considering transferring out of policies with Guaranteed Annuity Rates (GARs).

Encouraging trading updates from nationwide house builder Persimmon and Northern-focused builder and urban regeneration expert MJ Gleeson both offer further evidence that the UK residential property market is holding up well, just over a year after Brexit and in the midst of ongoing political uncertainty.

New Work and Pensions Secretary David Gauke has set the Government on a collision course with Labour after hinting at more rapid rises in the state pension age.

The Office for National Statistics has today published preliminary findings from its Wealth and Assets Survey, covering July – December 2016.

Debenhams shares sank 4% to levels not seen since the end of the last bear market in spring 2009 as new chief executive officer Sergio Bucher admitted that trading in the 15 weeks to 17 June had been “volatile”.

Switzerland’s Nestlé, owner of beloved British brands such as KitKat, Aero, Jelly Tots, Fruit Pastilles and Yorkie, is facing calls from American investor Daniel Loeb to improve its financial and share price performance.

AJ Bell senior analyst, Tom Selby, comments on the confirmation that the state pension triple-lock will remain in place as part of a deal struck between Theresa May's Conservative Party and Arlene Foster's Democratic Unionist Party (DUP).

Second-guessing Tony Pidgeley, chairman is Berkeley Homes, is unwise, so it is not surprising that investors are taking heed by marking the shares higher this morning, as the company’s full-year results reveal it is still adding to land bank and planning further cash returns via a mixture of share buybacks and dividends.

An unexpected shift towards increasing interest rates on the Bank of England’s Monetary Policy Committee (MPC) is driving the pound higher and at the same time kicking the FTSE 100 lower.

Just as investors had begun to give up on the Federal Reserve following through on its plan to deliver three interest rate hikes this year, the US central bank has pushed through a second rate, reaffirmed its plans for a third and even stated it intends to start to sterilise its huge Quantitative Easing (QE) programme.

Higher-than-expected sales completions, a 13% jump in the weekly reservation rate and an increased order backlog are all chiming with investors in FTSE 250 house builder Bellway today, as the shares are trading up by more than 4% in early trading, to take them back to where they were in early 2016 before Brexit jitters began to hit home.

“It might not be a household name although a record of 38 consecutive increases of more than 5% in Halma’s annual dividend suggests that it should be,” comments Russ Mould, investment director at AJ Bell.

A thumping stated operating loss and a big cut in the full-year dividend both mean that Mitie’s first set of full-year results under new boss Phil Bentley are pretty ugly, but the conclusion to the accounting review, the launch of a new strategy and a drop in net debt are all giving the shares a lift.