Only registred members can create thier own customized alerts.
HB Markets Breakfast Today including: Bovis Homes and Carnival
The markets
Market opening: Markets could mirror the optimism in Asia due to better-than-expected Chinese GDP data. FTSE futures were trading 37 points higher at 7.00 am UK time.
New York: US markets were closed yesterday.
Asia: Investors reacted positively to better-than-expected Chinese GDP data. The Nikkei closed 1.1% higher, while the Hang Seng was trading at +2.3% at 7.00 am UK time.
Continental Europe: The German DAX and the French CAC 40 closed 1.3% and 0.9% higher, respectively, as France's borrowing cost dropped during the auction of 1-year, €1.8 bn notes despite ratings cut..
UK small caps: The FTSE AIM All-Share index closed 0.3% lower yesterday.
Today's news
China's Q4 2011 GDP growth slows but exceeds expectations
In Q4 2011, the Chinese economy grew 8.9% y-o-y, slightly ahead of the 8.7% forecast, and at its slowest pace since Q2 2011. GDP growth is expected to decelerate further in Q1 2012 as exports to Europe shrink and the domestic housing market contracts. Economic growth has slowed over 2011 to 9.2% compared to 10.4% in 2010.
Greek default fears grow
As talks with private creditors suspended till Wednesday, Greece sent a delegation to consult with the IMF. Reuters’ sources informed that though Greece and bondholders are flexible, certain conditions by the troika – European Union (EU), European Central Bank (ECB) and the IMF – were impeding the finalisation of the agreement. The deal is a pre-requisite for drawing the next €130bn tranche and must be agreed upon by the end of this week to be finalised before the €14.5bn March bond redemptions.
S&P first to downgrade EFSF
Standard & Poor’s has downgraded the Eurozone’s European Financial Stability Facility to AA+ following a cut in the AAA credit ratings of France and Austria.
Company News:
Bovis Homes released a trading update for the year ended 31st December 2011 yesterday. Management was confident that pre-tax profits will meet market consensus. Completed homes increased 8% y-o-y to 2,045 and the average selling price increased 1.1% to £162,400. The gross margins improved to more than 20.0% from 17.9% in 2010, and operating profit margins are expected to touch 10.0%, up from 7.3% in 2010. Reservation of private homes increased 24% in 2011 to 1,653 homes. The company's forward sales for 2012 delivery increased 35% to 568 homes. A shift in product mix towards single family homes from apartments and building on land acquired at a discount had a positive impact on margins, the management said. During 2011, the company focussed on the more resilient housing market in the south of England, the management added.
Our view: Bovis's comparatively small size has enabled it to shift into the relatively profitable south of England market. We appreciate the agility with which its product mix was altered in response to changing demand. However, the continued drop in house prices and weakness in the key drivers of the housing market growth (consumers' real income, confidence, mortgage availability, among others) warrants caution while investing in the sector, in our opinion. We issue a Hold recommendation.
Shares prices of cruise company, Carnival plunged 16.5% yesterday following recent tragic events involving the company's liner Costa Concordia. Markets are reacting to anticipated financial losses of between US$85m to US$95m resulting from the company's cruise ship running aground off the coast of Italy. The loss per share will be about US$0.11 to US$0.12 (FY2011: EPS US$2.42), the management estimated.
Our view: Management expects the vessel to be out of services for at least this fiscal year, compounding the loss and making it harder to service its large fixed costs and capital expenditure. The accident comes at the peak booking time for the European summer, and will hit already weak consumer demand not only for the company but across the cruise industry, thereby increasing pricing pressures. The accident will also subject the company’s emergency operational procedures to minute scrutiny, likely to increase long-term costs. We would steer clear of the stock for the foreseeable future.
Economic News:
UK house prices
House prices in the UK declined 0.8% m-o-m to £224,060 in January, according to the property website Rightmove. Annually, prices rose 0.4%. Of the ten areas tracked by the website, six registered a decline in prices. Prices dropped most in (3.5%) in south west England. The London property market proved an exception; prices increased 0.8% m-o-m and 6.1% y-o-y. Excluding London, house prices decreased 1.5% m-o-m in January.
Our view: Rightmove expects the property market in 2012 to remain challenging and fragmented. Rising unemployment and waning consumer confidence, as the events in the Eurozone threaten to push the economy into a recession, is making consumers postpone buying decisions. The shortage of mortgage approvals following tighter lending norms from banks in response to the stressed funding market is putting downward pressure on demand.
German wholesale prices
Wholesale prices in Germany remained flat m-o-m in December; while the annual growth slowed to a 3.0% y-o-y rise from the 4.9% jump in November, Destatis said yesterday. For 2011, wholesale prices increased 7.5% following a 5.9% increase in 2010.
Our view: The increase in wholesale prices is below economists' expectations of increases of 0.2% m-o-m and 3.7% y-o-y. According to data published last Thursday, consumer prices increased 2.3% in 2011, while wholesale prices have increased 7.5%. With low pass through to consumers, retailers may have taken a hit on their margins. For the longer term, expect further upward pressure on consumer prices.
