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HB Markets Breakfast Today including: Laird, Persimmon and Morrisons
The markets
Market opening: FTSE futures indicate a higher opening today trading 43 points up at 7.00am UK time ahead of a meeting between IMF's Christine Lagarde and German leader Angela Merkel.
New York: Reassuring data about recovery in the US helped the S&P 500 close 0.2% higher yesterday.
Asia: Continued positivity in US data and hopes of monetary easing in China cheered markets. The Nikkei rose 0.4% and the Hang Seng was trading 0.8% higher at 7.00 am UK time.
Continental Europe: The slide in bank stocks partially offset buying into defensive sectors like food and beverages and utilities ahead of the crucial bond sale. The German DAX and French CAC 40 closed 0.7% and 0.3% lower yesterday.
UK small caps: The FTSE AIM All-Share closed 0.5% higher yesterday.
Today's news
Trade growth in China decelerating
Growth in China's trade slowed in December. Exports increased 13.4% y-o-y compared to 13.8% in November. Imports grew 11.8%, the slowest in 26 months, defying expectations of 17.0%. The slower pace of growth could encourage the central bank to ease monetary policy.
Merkel-Sarkozy caution Greece
German Chancellor Angela Merkel and French President Nicolas Sarkozy cautioned Greece saying no further funds would be granted until the debt swap deal with private creditors is finalised. Both leaders were adamant about the imposition of Tobin Tax, but disagreed on the timing of introduction. Britain is opposing the financial transactions tax, unless it is implemented globally.
UK needs more than QE - BCC
The euro debt crisis could cause UK's economy to contract in H1 2012 after stagnating in Q4 2011, a British Chambers of Commerce (BCC)'s survey said Tuesday. Bank of England's £275bn asset purchase program will have limited success without an effective credit-easing program, BCC added.
Company News:
Homebuilder Persimmon released a trading update for the year ended 31st December 2011 yesterday. Total revenues stood at £1.5bn. The average selling price declined 2.0% to £164,000. The company completed 4,921 new homes in H2 2011, 4% more than that in H2 2010. However, total new homes completed in 2011 declined to 9,360 homes from 9,384 in 2010. A combination of cost control, utilisation of land acquired at a lower cost and lowering finance charges pushed the company's pre-tax profits 50.0% higher, at the top end of analyst expectations (£130m-£148m, consensus: £138.9m). Underlying operating margin for the year was about 10.0%, while that for H2 2011 was 10.5%. Forward sales improved to £615m from £565m in 2010.
Our view: The recent drop in house prices and the threat of new-build values declining if prices and home equity continue to fall further are big challenges in 2012. Further, the share is trading at too high a premium to the net asset value, and we therefore issue a SELL recommendation.
Morrison WM (LON:MRW)
In a post-Christmas trading update, supermarket chain Wm Morrison reported a 2.9% increase in total sales excluding fuel and VAT (5.6% including fuel) in the six weeks ending 1st January 2011. Like-for-like sales grew 0.7%. Management said that full-year trading performance is in-line with expectations. Morrison has not participated in the ongoing supermarket discount war to lure customers, relieving pressure on margins; however promotions formed 40% of sales. Management cautioned that sales in 2012 will improve little, as plunging consumer confidence due to the government's austerity package and the euro debt crisis will outweigh the benefits from an expected cooling of inflation.
Our view: Though Morrison's performance is in line with market expectations, the positive same-store sales compare poorly to the 2.4% increase seen in Q3 2011. The retail sector will go through a tough phase in 2012, with growth weakening as lack of consumer confidence curtails consumers spending. However, grocers could outperform non-food retailer as consumers re-allocate budgets towards essential food stuff and away from discretionary items (apparels, electronics etc.). We remain neutral on the stock, with Tesco remaining our preferred stock in the sector.
Technology solutions provider, Laird, issued a trading update for the year ended 31st December 2011 yesterday. The underlying earnings per share is expected to be at least 16p following losses in 2010. Trading in Q4 2011 followed the trend set in Q3 2011, the company said. In Q3 2011, revenues from continuing operations grew 18% y-o-y and organic revenues grew 8% y-o-y.
Economic News:
Eurozone Sentix investor confidence
The Sentix investor confidence improved to -21.1 in January from a two-and-a-half-year low of -24.0 in December. The index for expectations increased to -23.5 points from -30.5 in December, but the current conditions index slid 1.5 points to 18.8 in December. A reading above zero indicates optimism.
Our view: The improvement in the index is contrary to expectations of a fall to -24.6 and indicates that investor sentiment has improved slightly, reflecting expectations that the recession in the Eurozone could be milder and shorter than previously expected.
Germany headline economic data
German exports rose 2.5% m-o-m and imports fell 0.4% m-o-m in November boosting the trade surplus to €15.1bn, the Federal Statistics Office, Destatis reported yesterday. Consequently, the current account registered a surplus of €14.3bn, increasing from €10.0bn in October. The annual increase in export and imports was 8.3% and 6.7% respectively. The trade surplus for October was revised upwards to €12.5bn from €11.5bn. In another release, Destatis said that industrial production fell 0.6% m-o-m in November following a 0.8% rise in October. Production of capital goods declined 1.0% and that of consumer goods shrank 0.7%. Construction activity, however, increased 4.5%.
Our view: Slowing industrial production despite increasing exports indicates that existing inventories were used to complete exports orders and points towards a possible slowdown in the German economy. The mixed data makes it difficult to estimate the direction of the German economy in Q4 2011. Positive exports could have offset a decline in industrial production; leaving private consumption to be the determinant of the GDP growth, pointing towards a slight contraction in the German economy (retail sales dropped 0.9% m-o-m in November).
US consumer credit
US consumer credit expanded by US$20.4bn in November to US$2.5trln, the US Federal Reserve said yesterday. Revolving credit, which includes credit cards, increased by US$5.6bn to US$798.3bn, driving consumer credit growth. Non-revolving credit, including student loans, increased by US$14.8bn to US$1.7trln.
Our view: This is the highest rise in consumer credit since November 2001 and surpasses expectations of a US$7.0bn increase. The huge surge in revolving credit suggests that credit cards were used to fund most of the shopping during the holiday season. The recent signs of some optimism in labour markets could have made consumers more optimistic about personal finance as seen by the rising consumer confidence figures, which increased borrowings. However, shrinking real incomes (down nearly 2% in Q3 2011) may have also forced some consumers to borrow for the holiday season.
