Only registred members can create thier own customized alerts.
HB Markets Breakfast Today including: Sports Direct, Wood Group
The markets
Market opening: UK markets are expected to open higher as positive developments in Spain, Italy (see below) and US ease investor fears.
New York: US stocks rose Thursday after a three-day decline as positive manufacturing data reinforced confidence in the US economy and overshadowed concerns about the European debt crisis. The S&P 500 closed 0.3% higher at 1,215.75.
Asia: Positive economic data from the US and anticipated approval of Italy's austerity plan led to a rise in Asian stocks. The Nikkei closed 0.3% higher, while the Hang Seng was trading at +1.9% at 7.00 am UK time.
Continental Europe: European stocks ended higher Thursday, driven by better-than-expected economic data and the success of Spain's bonds auction. Germany's DAX and France's CAC-40 advanced 1% and 0.8%, respectively.
UK small caps: The FTSE AIM All-share lost 0.8% yesterday.
Today's news
Spanish bond yields fall after successful auction of bonds
Spain's sovereign yields fell after it successfully completed an auction of five and ten-year bonds worth just over €6bn compared to a target of €6bn. The yield on ten-year Spanish government bonds fell 22 basis points to 5.52%, leaving the spread over German Bunds at 357 bps.
Italian government to face vote of confidence
The Italian government, headed by the technocrat Mario Monti, is set to face a vote of confidence in the Parliament to speed up the approval of a €33bn austerity package. The vote is expected to be passed without hurdles as the technocratic government enjoys a majority in the Parliament. The austerity plan would then face a similar vote, expected to be held before Christmas.
Breakfast Today is taking a holiday
Breakfast Today is taking a break for the festive season with our last issue of this year being published on 21st December. We will be back on 4th January 2012. We wish our readers a Happy Christmas and a prosperous New Year!
Company News:
Wood Group, provider of services to the oil and gas, and power generation industries, released a pre-closing trading update for the year ending 31st December 2011 yesterday. The management said that full year performance was in line with market expectations. Of its three divisions, Engineering and GTS will beat expectations. The Wood Group PSN division, however, will trail H2 2012 expectations due to loss of two contracts, losses on a downstream Columbian project, and delay in a project with Petroleum Development Oman. The company expects to report extraordinary profits of £2bn plus from the sale of its Well support division.
Our view: Though integration of the PSN unit that the company bought in December 2010 for US$955m is not going as well as expected, the problems are expected to be sorted out in 2012. The management was upbeat about meeting analyst expectations. The oil and gas industry has not been affected by the turmoil in the financial markets the management added. Also, oil prices have remained at favourable levels, maintaining the profitable for the company's customers, prompting a positive long term outlook. We endorse the management's view and issue a BUY recommendation for the stock.
Sports Direct reported results for H1 2012 ended 23rd October 2011 yesterday. Revenue increased 8.4% to £888.6m as a result of online sales increasing 85%. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 1.9% y-o-y to £139.2m from £136.5m. Pre tax profits were flat at £100.3m. The management stuck to its policy of not declaring dividend.
Our view: The company seems to be on track to achieve the full year EBITDA target of £215m, which if achieved, will result in the award of 6m shares to founder Mike Ashley. The company has a unique scheme, where its staff's bonuses are directly tied to its financial performance. However, the with the worsening economic climate and pressure on consumer spending, we are sceptical about the company's ability to command a share in the consumers' tight budgets and issue a Hold recommendation for the stock.
Economic News:
UK Retail sales
Retail sales (including fuel) in the UK fell 0.4% m-o-m, and rose by 0.7% y-o-y in November, the Office of National Statistics reported yesterday. Excluding fuel retail sales fell by 0.7% m-o-m. Core retail sales increased 0.5% y-o-y in November.
Our view: The drop in retail sales, despite heavy discounting by retailers, further highlights the squeeze felt by consumers, as rise in cost of living outpaces the rise in incomes. Some believe that consumers are delaying their holiday shopping, hoping for further discounts by the struggling retailers. The fear that UK is following the Eurozone into a recession has kept consumer confidence at very low levels and does not bode well for the upcoming holiday shopping season.
US Philadelphia Fed Business Outlook
In the Philadelphia region, the general economic index increased to 10.3 in December from 3.6 in November, the Federal Reserve Bank of Philadelphia reported yesterday. New orders expanded to 9.7 in December from 1.3 in November; however, shipments decreased to 6.7 from 7.3 the previous month. The employment index was mixed; though the number of jobs increased, there was a decline in the average work week. A reading above zero indicates an expansion in economic activity.
Our view: Domestic businesses are rebuilding inventories that diminished during Q3 2011. This could have supported growth in manufacturing activity in the region, as indicated by an increase in new orders. However, the widely anticipated recession in Europe and ensuing global economic slowdown could have led to a drop in shipments. Nevertheless, the overall data is encouraging and indicates the US economic recovery is not losing steam.
US PPI
According to the Bureau of Labour Statistics, factory gate prices in the US increased 0.3% m-o-m and 5.7% y-o-y in November. Producer prices fell 0.3% m-o-m in October. A rise in prices was ascribed to the 11.5% increase in vegetable prices that, in turn, led to a 1.0% m-o-m rise in finished consumer food prices. Core prices, excluding food and energy, expanded 0.1% m-o-m and 2.9% y-o-y.
US Industrial Production and Capacity Utilization
Industrial production in the US contracted 0.2% m-o-m in November as against the expectation of a 0.3% gain, the US Federal Reserve reported yesterday. Manufacturing, which constitutes around 75% of the index, fell 0.4% due to a sharp decline in the output of cars and spares. Industrial production increased 3.7% y-o-y following a 3.9% y-o-y rise in October. Capacity utilization dipped to 77.8% in November, following an upwardly revised 78.0% reading in October. Lower demand in Europe could have decreased production in the US. The latest industrial production data confirms the Fed's view that business investment slowed down during Q4 2011.
US Empire State Manufacturing survey
The Empire State Manufacturing index surged to 9.5 in December from 0.6 in November, the New York Federal Reserve reported yesterday. The new orders sub-index rose to 5.1 from -2.1 in November. Indicators measuring the employment situation were mixed. The index for number of employees stood at 2.3 vis-à-vis -3.7 in November, but the average employee work week fell to -2.3 in December.
Eurozone Purchasing managers' index (PMI)
Markit's Eurozone Composite Purchasing Managers' Index improved to 47.9 in December from 47.0 in November indicating that the pace of decline in economic activity in the Eurozone has slowed. Economists' had expected the index to worsen to 46.5. The manufacturing sub index increased to 46.9 from 46.4 in November. The service PMI rose to 48.3 in December from 47.5 in November. A reading above 50 indicates expansion, while that below 50 indicates contraction in activity.
Eurozone Inflation
The rise in inflation in the Eurozone was stable at 3.0% y-o-y and increased by 0.1% m-o-m in November, Eurostat reported yesterday. For the larger 27 member European Union, inflation increased at 3.4% y-o-y and 0.2% m-o-m.
