The Markets
Market opening: The FTSE-100 is expected to open around 24-points higher this morning.
New York: Wall Street ended in the green amid better-than-expected economic data released yesterday. Additionally, positive corporate earnings lifted investor sentiment. The S&P 500 rose 1.2%, led by the energy sector.
Asia: Equities are trading higher, taking positive cues from gains in the global markets. Investors largely ignored weak economic data from China. The Nikkei 225 was closed due to a public holiday. The Hang Seng was trading 1.2% up at 7:00 am.
Continental Europe: Markets ended higher as positive Eurozone manufacturing data boosted investor confidence. Furthermore, companies’ strong quarterly earnings encouraged buying. Germany’s DAX and France’s CAC 40 rose 0.9% and 0.4%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices decreased 1.6% and 1.0%, respectively. The spread between the two varieties stood at US$2.7 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.26% higher yesterday at 739.85.
Today’s news
UK’s manufacturing PMI rises in October
As per Markit, the UK’s manufacturing PMI improved to 55.5 in October, highest in sixteen months, from 51.8 in September. The positive data outweighed the recent slowdown in the manufacturing sector; the market is expected to improve in the fourth quarter.
Company News
Ryanair Holdings (LON:RYA) – Buy
Yesterday, Ryanair Holdings (Ryanair) announced its unaudited results for the half year ended 30th September 2015. Revenues advanced 14% to €4.0bn in H1 2015, with a 13% increase in number of customers to 58.1 million. Pre-tax profit rose 37% to €1.2bn in H1 2015, leading to an EPS of €0.80 against €0.57 in H1 2014. Load factor increased by 4% to 93%. Cash and cash equivalents at the end of period stood at €1.4bn (H1 2014: €1.2bn). In August, the company completed a share buyback program of €400m. Ryanair sold its 29.8% interest in Aer Lingus and plans to return the proceeds of €398m to shareholders in November. The company has raised its FY 2016 traffic target to 105 million customers from 104 million, and net profit to be in the upper range of the previously guided €1,175m to €1,225m.
Our view: Ryanair delivered excellent performance in H1 2015 with improved revenues and higher margins. The company witnessed a sharp rise in customer traffic and seat load factor owing to its low fares and strong forward bookings. Ryanair continues to build on the success of its ‘Always Getting Better’ (ATB) customer experience programme that sets apart the carrier as more than just a low cost airline. The company is taking advantage of the lower oil prices as it introduced new routes and increased frequencies, with additional services for business passengers. All these positives support the upward revision in profit guidance for FY 2016. Ryanair also plans to open new bases and routes across Europe, along with adding 28 new Boeing 737 aircraft to its fleet this winter. Additionally, Ryanair has hedged 95% of its fuel for FY 2017 at an average rate of US$62 pbl. This in turn is expected to generate total savings of €430m in FY17. Furthermore, the company plans to improve its ATB service to further enhance consumer experience. The new enhancements include the launch of a new app, new cabin interiors, new car hire service, new crew uniforms, and better in-flight menus. In light of the above argument, we maintain a Buy rating on the stock.
Yesterday, IP Group informed that its portfolio company, Ultrahaptics Ltd has successfully raised £10.1m. The company’s unaudited beneficial interest of 30% in Ultrahaptics is valued at £7.1m, and Venture Fund II’s 11% stake is valued at £2.6m. IP Group and IP Venture Fund II committed £1.7m and £0.8m to the fundraising, respectively. The process has resulted in an unrealized fair value gain of £4.6m to IP Group and £1.6m to IP Venture Fund II.
Our view: The aforementioned update is an encouraging one for both IP Group and its portfolio company. Ultrahaptics has developed a technology that allows users to get tactile feedback without touching or wearing anything, using ultrasound to project vibrations through the air and directly on the users. This technology is relatively new to the market and carries immense potential going forward. Recently, IP’s portfolio company First Light Fusion Limited raised funds worth £22.7m, for development of fusion energy technology. Furthermore, as per the recently announced half yearly results, IP Group’s several companies made substantial progress in their respective domains. The company has till date backed nearly 20 spin-out companies from the University Of Oxford and enjoys an impressive track record in innovation and entrepreneurship. IP Group’s balance sheet remains strong with more than £200m of available capital. Thus, in view of the above and the overall progress made by IP Group through its portfolio companies, we maintain a Buy rating on the stock.
HSBC Holdings (LON:HSBA) – Buy
Yesterday, HSBC Holdings (HSBC) declared its results for the third quarter and nine months ended 30th September 2015. Reported revenue for Q3 2015 fell to US$15.1bn from US$15.8bn in Q3 2014, while for the first nine months (9M15) stood at US$48.0bn (9M14: US$46.9bn). Adjusted operating expenses increased 2% to US$8.6bn in Q3 2015, mainly due to investment in regulatory programmes and compliance. Reported pre-tax profit rose 32% to US$6.1bn in Q3 2015, and 16% to US$19.7bn for the first nine months of 2015. EPS rose to US$0.73 in 9M15 as compared to US$0.67 in 9M14.
Our view: HSBC delivered resilient performance in the third quarter despite difficult market conditions. The slowdown in the Asian and global markets hurt the company’s overall business. However, HSBC witnessed an improvement in profits due to lower fines and fall in compensation paid to customers. The company undertook various measures to reduce its risk-weighted assets (RWA) by US$32bn during Q3 2015, and total of US$82bn since the beginning of the year. Additionally, HSBC’s Capital Equity Tier (CET) 1 capital ratio increased to 11.8% from 11.6% on 30th June 2015. HSBC plans to avail prevailing huge opportunities in the untapped Asian markets, along with capitalizing on rising disposable income in the UK and stability in the US economy. Overall, HSBC’s outlook remains strong owing to its plans to build strong capital base and reorganize RWAs. In view of the above argument, we continue to maintain a Buy rating on the stock.
Economic News
Germany manufacturing PMI
As per the data released by Markit, the final manufacturing PMI of Germany for October increased to 52.1 from 51.6 in September. This was better than the market expected reading of 51.6.
Eurozone manufacturing PMI
Manufacturing PMI for the Eurozone rose to 52.3 in October, from 52.0 in September, final data from Markit showed yesterday. This was better than the market expected reading of 52.0.
US manufacturing PMI
The final Markit PMI for the US stood at 54.1 in October, ahead of the preliminary estimates and market expectations of 54.0. The final US PMI for the month of September was recorded as 54.0.
US construction spending
US Construction spending increased 0.6% m-o-m to an annual rate of US$1.09tr in September, as per a report released by the US Commerce Department. Economists expected spending to rise 0.5% during the month.
US ISM manufacturing
US manufacturing PMI fell to 50.1 in October from 50.2 in September, as per the Institute of Supply Management (ISM). Economists forecasted a reading of 50.0.