Market opening: The FTSE-100 is expected to open around 27-points higher this morning.
New York: Wall Street ended in the green amid stronger-than- expected corporate earnings reported yesterday. Furthermore, positive economic data in the US boosted investor sentiment. The S&P 500 advanced 1.7%, led by the industrials sector.
Asia: Equities are trading higher, taking positive cues from gains in global markets, amid hopes of additional stimulus from the European Central Bank (ECB). The Nikkei 225 added 2.1%, after a weakening yen supported export-driven stocks. The Hang Seng was trading 1.4% up at 7:00 am.
Continental Europe: Markets ended higher, with the ECB raising the possibility of additional stimulus for the Eurozone. Additionally, upbeat quarterly earnings from companies lifted investor confidence. Germany’s DAX and France’s CAC 40 rose 2.5% and 2.3%, respectively.
Crude Oil: Yesterday, Brent and WTI prices increased 0.5% and 0.4%, respectively. The spread between the two varieties stood at US$2.7 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.03% lower yesterday at 744.69. To read our latest research click here.
Today’s news
UK retail sales grow in September
As per data from the Office for National Statistics, retail sales in the UK rose 6.5% y-o-y in September, the fastest since December 2013, following a 3.5% increase in August. The improvement in sales was mainly led by a fall in store prices and the Rugby World Cup.
ECB to re-examine stimulus policy in December
ECB President Mario Draghi informed the bank would re-examine its €1.1tr quantitative easing (QE) stimulus programme at its December meeting. He added that the bank is ready to undertake a large stimulus package that may include more bond purchases, as the Eurozone faces low inflation.
Travis Perkins (LON:TPK, 1,845.0p) – Speculative Buy
The Group yesterday provided the market with a third-quarter update. It detailed continued market outperformance against a weaker third-quarter RMI market. It reported total sales growth of 5.5%, like-for-like growth of 2.6% and two year like-for-like growth of 8.4%, but noted that full-year EBITA is now expected to be at the lower end of market expectations. John Carter, Chief Executive, commented: “Our strategy continues to deliver outperformance of the markets in which we operate. Whilst we planned for a modest reduction in RMI markets through the summer given the slowdown in secondary housing transactions towards the end of 2014 and early part of 2015, we saw weaker market demand than anticipated. This was in both housing and non-housing RMI spend as evidenced by the recent construction output data, leading to dampened growth across all of our businesses. We indicated earlier in the year that we expected volumes to pick-up during the second half and October trading so far has seen a recovery in volumes.”
Our view: Strange isn’t it? Surely times can have rarely been better for UK building materials suppliers and equipment hire groups? The public, as ever, love nothing more than adding value to their properties while prices spiral ever upwards. Surely RMI activity should be booming against a background of more relaxed planning legislation and low interest rates/energy costs, while demand-side subsidies also power new housebuilding as the State aspires to lift starts as far as 250,000/year in an effort to quell growing public disquiet over the lack of affordable housing? So a warning from one of the principal UK’s distributors is, almost, the last thing one might expect. But wait a minute. Have we not recently also heard similar tales of woe from the likes of HSS Hire, Speedy Hire, Michelmersh Brick, SIG, etc.? Yes we have! Amid all this disbelief, perhaps something genuinely is going on. Certainly the dive in share prices across the sector yesterday told us as much. Yes, the market was already aware of the modest slowdown in secondary housing transactions that began on Q4 last year (from the absolutely manic levels recorded in the comparable period), so there should be no real surprise there. That said, feedback from various independent industry players, suggests that the industry also witnessed an unusual change of (largely self-employed) contractor vacation patterns over the summer. In the event, a much higher proportion than normal became ‘unavailable’ during the late July and August periods. Interestingly, this appears to have coincided with Government legislation making it illegal (rather than being just an unwritten rule) for parents to take their children on holiday during term-time. The net effect may have been to have forced the UK sector’s vacation patterns to match much closer those already established in Continental Europe. If indeed this was case, then it provides good reason for the ‘slow summer period’ reported by many of the industry suppliers; it would also suggest that this lack of seasonal availability could well be made up, weather permitting, during the final quarter. Assuming this is the case, yesterday’s sell-off may be seen as something of a market over-reaction and present an important buying opportunity. Quite clearly, investors will need to listen carefully for all and any reassurances of improved activity levels from the sector over the next couple of months. Beaufort accordingly, takes its recommendation on Travis Perkins from ‘Buy’ to ‘Speculative Buy’ in recognition of the Group’s changed risk profile.
Yesterday, GKN released a trading update for the nine months ended 30th September 2015. The company’s sales during the period stood at £5.7bn (2014: £5.6bn). GKN’s Aerospace division sales improved to £1.8bn (2014: £1.6bn), while the Driveline segment reported sales of £2.7bn (2014: £2.6bn). GKN Powder Metallurgy sales stood at £694m (2014: £696m). GKN Land Systems sales in the period dropped to £535m (2014: £602m).
Our view: GKN sustained its growth momentum recording a 2% organic growth in the first nine months of 2015, offsetting the difficult market conditions. The company’s major segments Aerospace and Driveline performed in line with the expectations and reported improvement in sales. The Aerospace division continued on the shift from old programmes to newer platforms, providing GKN a solid base for future growth opportunities. Additionally, GKN remains on track to complete the acquisition of Fokker Technologies, which would further enhance its technology, manufacturing footprint and bring extra content on key growth programmes. Furthermore, the company launched a number of new brands in the third quarter to counter the competition from the local brands. With all the major divisions exhibiting good performances, the company remains well positioned to witness decent growth in the global markets. Therefore, we retain a Buy rating on the stock.
Ladbrokes (LON:LAD, 109.90p) – Hold
Yesterday, Ladbrokes released a trading update for the third quarter ended 30th September 2015. Revenues fell 0.7% y-o-y in Q3 2015, with the European Retail and UK Retail recording decline of 8.5% and 1.0%, respectively. However, the Digital segment witnessed a 6.4% rise in revenues, with an 11.5% increase in gaming and 26.3% growth in Australian business. The company’s EBIT fell 56.7% to £14.3m in Q3 2015. Net debt at the end of period stood at £311.6m (31st December 2014: £419.2m). On the operational front, Ladbrokes awaits approval of regulators for a merger with Coral.
Our view: The third quarter has been difficult for Ladbrokes as increased marketing expenditure and higher gaming taxes weighed heavily on the company’s performance. However, Ladbrokes worked on its strategy to invest and grow its recreational and multi-channel customer base mainly across UK Retail, Ladbrokes.com and Ladbrokes Australia. The company’s initiatives to improve digital business turned fruitful as it reported improved revenues in this segment. The UK Retail business is progressing well, with 17.5% increase in the number of bets staked so far this season as compared to the previous year. In Ladbrokes.com, the company launched a new desktop product on the Mobenga platform, with cash out options across all sports betting platforms and implemented the next level of IMS making a competitive single wallet offer for customers. Furthermore, the proposed merger with Coral, Ladbroke’s rival is expected to improve company’s market position. We believe Ladbrokes is in a developing phase and we would like to wait and watch the company’s performance in the long run. For the time being, we maintain a Hold rating on the stock.
London Stock Exchange Group (LON:LSE, 2,495.0p) – Buy
Yesterday, London Stock Exchange Group (LSE) released an interim management statement for the third quarter ended 30th September 2015. Revenues from continuing operations improved 12% y-o-y to £326.4m in Q3 2015, while revenues for the first nine months of 2015 stood at £897.4m, 10% higher on y-o-y basis. Information Services and Technology Services reported revenue growth of 44% and 20%, respectively. The headline income for Q3 2015 rose 85% to £589.3m, while for the nine months advanced to £1.8bn, 83% higher than the same period last year. On the operational front, the company announced the launch of CurveGlobal, a new interest rate derivatives venture with a number of major dealer banks and Chicago Board Options Exchange (CBOE). LSE confirmed the sale of Proquote, a UK market data vendor provider, which is expected to complete in Q4 2015. Post the period, the company proposed sale of Russell Investment Management to TA Associates, for a consideration of US$1.1bn.
Our view: LSE delivered solid performance in the third quarter of 2015 led by the information services and technology services segments. The company benefited from higher activities in the primary market, which continued to bloom with record fund listings from a diverse range of international issuers. LSE’s launch of CurveGlobal would enable them to further extend product offerings and provide broad rate offerings to its customers. The integration of FTSE and Russell has boded well for the company, as FTSE Russell reported sharp improvement in revenues. Furthermore, LSE has started the fourth quarter on a positive note, with the successful Initial Public Offering (IPO) of Worldpay, the biggest new issue in the UK so far in 2015. We believe the company is well positioned to leverage on its international open access market infrastructure to steer innovation and bring market efficiencies. Therefore, we maintain our Buy rating on the stock.
Zoopla Property Group (LON:ZPLA, 260.0p) – Buy
Yesterday, Zoopla Property Group (Zoopla) released a trading update for the financial year ended 30th September 2015. The company expects revenue and EBITDA for 2015 to be around £107m (2014: £80.2m) and £48m (2014: £39.6m), respectively. Zoopla has added 146 new UK Agency branches since its last update in July, taking the total to 12,702 at the end of the financial year. Additionally, the company had 2,706 new home development members, 737 overseas members and 266 commercial members taking the total number of members at the end of the financial year 2015 to 16,411. Net debt at the end of period stood at approximately £94m. On the operational front, the company completed the acquisition of uSwitch. Zoopla would declare the final results for the financial year 2015 on 2nd December 2015.
Our view: The financial year 2015 has been remarkable for Zoopla with solid performance in both its divisions. The Property Services segment performed nicely and witnessed substantial rise in number of UK Agency members. In addition, the Comparison Services division performed better than expectations, especially after the acquisition of uSwitch. The energy segment gained from uSwitch’s strong hold in the market and availability of viable tariffs, while the communications vertical has improved from highly competitive consumer deals in broadband and mobile. The improvements across verticals have reflected in the company’s financial performance as it anticipates solid revenue growth and margins. Furthermore, Zoopla has adjusted nicely to the competition from newly launched commercial real estate platform OntheMarket by Agents’ Mutual. With continued enhancements in the tools and services to help consumers in the property market, the company looks to deliver on its growth strategy. In view of the company’s solid performance and bright prospects going ahead, we maintain a Buy rating on the stock.