The markets
Europe
The FTSE-100 finished yesterday's session 0.04% higher at 6,322.40, whilst the FTSE AIM All-Share index closed 0.18% better-off at 730.41. In Europe equities ended mixed as investors digested the outcome of the central bank's latest decisions, corporate earnings and a rebound in oil prices. Germany's DAX added 0.2%, whereas France's CAC 40 closed flat.
Wall Street
Wall Street retreated amid a slowdown in US GDP growth and consumer spending during Q1 2016. Meanwhile, an increase in initial jobless claims and weak corporate earnings also remained in focus. The S&P 500 dropped 0.9%, with information technology leading the nine sectors that declined, after Apple Inc shares continued their losing streak.
Asia
Markets are trading lower, tracking an uninspiring lead from Wall Street. The Bank of Japan's inaction earlier this week, continued to stoke investor concerns. The Hang Seng was trading 1.2% down at 7:00 am due to losses in energy and property shares. The Nikkei 225 was closed on account of the Showa day holiday.
Oil
Yesterday, Brent and WTI crude oil prices increased 2.0% and 1.5%, respectively. The spread between the two varieties stood at US$2.1 per barrel.
Headlines
House prices in UK register slowdown in April
According to the Nationwide Building Society, house prices in the UK increased 4.9% y-o-y vis-à-vis 5.7% in March. During the month, prices increased 0.2% m-o-m. The slowdown was primarily ascribed to a surge in property sales in March to offset the additional stamp duty on buy-to-let properties.
Greece bailout meeting deferred to May 9
The Eurozone's finance ministers have decided to defer a key meeting on Greece's bailout programme to 9th May 2016. The delay would allow the ministers to assess the country's economic condition and draft an effective contingency plan, should the country miss its promised budget targets.
Company news
Herencia Resources (LON:HER, 0.02p) – Hold
Herencia Resources, the Chile focused mineral exploration and development company, announced yesterday that Next Minerals, a private Chilean mining company, has decided not to proceed with the acquisition of Herencia's Picachos copper project. In February, Herencia agreed to dispose 100% of the Picachos for US$5.1m. The company did not disclose details for Next pulling out of the acquisition and has decided to withhold the US$290,000 renewal payment for the Picachos licence while it explores other options. If the Picachos option is not renewed, the company may lose all rights to the asset but would have enough working capital to last until end of May 2016. Should Herencia decide to renew the option it would have sufficient working capital to last until early May 2016.
Our view: Given the current challenging market conditions management has been unable to finance the continued development of Picachos or find a buyer for the asset. Herencia continues to hold its Guamanga copper project and the 70% owned high-grade silver-zinc-lead Paguanta project in northern Chile. In light of the uncertain outlook for the company, we recommend a Hold on the stock.
Beaufort Securities acts as corporate broker to Herencia Resources plc
Howden Joinery (LON:HWDN, 493.70p) - Hold
Yesterday, Howden Joinery published a trading update for the period covering 16 weeks to 16th April 2016. The company, in general, performed in line with the expectations, with revenues rising 8.7% y-o-y and 6.4% on same depot basis. Although the company's cost of goods sold was impacted by adverse currency movements, it made progress by implementing a price increase for the year thus far. On the business development front, Howden remains on track to open 30 new depots in the UK this year. During the quarter, it opened six new depots and is now trading from 625 depots in the UK. In the year to date period, the company acquired 11.2 million shares for a consideration of £52.8m as part of its share buyback programmes announced earlier this year and last year. The company plans to release its half yearly report on 21st July 2016.
Our view: Howden issued an upbeat trading update for the first 16 weeks of the year. The update takes forward the company's excellent performance in 2015 when it reported high revenue and enhanced margins. The company continued to expand through the opening of new depots in the UK. Meanwhile, the company's share buyback programme remains, with Howden buying shares worth £52.8m during the aforementioned period. Though the company is well placed both financially and operationally to deliver long-term growth, the recent currency fluctuations have adversely impacted the company's cost of goods sold. As part of our general move in anticipation for UK's EU referendum-related slowdown, Beaufort has recently taken the precautionary step of downgrading the entire UK Housebuilding and Building Material sectors, including Howden Joinery, from 'Buy' to 'Hold'. That said, Beaufort is likely be quick to recommend re-building holdings following any serious correction and upon growing confidence in the electorate choosing to remain part of the EU.
Taylor Wimpey (LON:TW., 187.10p) - Hold
Taylor Wimpey, the UK focused residential developer, yesterday announced its trading statement for the period since 1 January 2016 to yesterday. During the period, customer demand advanced by +14% compared to the same period last year. Average private net reservation rates increased to 0.80 sales per outlet per week (2015 equivalent period: 0.76) for the year to date, while cancellation rates remained low at 11% (2015 equivalent period: 11%). Currently, the Group's total order book stands at 8,811 homes (2015 week 16: 8,200 homes), up +7.5%, excluding legal completions. Group also increased the total order book value by +16.6% to c.£2,168m from the equivalent point last year (2015 week 16: c.£1,859m), and by +21.9% from the year end. The short term land market remains stable and the Group converted over 3,000 plots from the strategic land pipeline totaling to c.78,000 plots as at end March 2016. The Group currently operating from 292 outlets, excluding joint ventures (2015 week 16: 302). The Group declared a final maintenance dividend of 1.18p per share (2014 final: 1.32p), giving a total maintenance dividend for 2015 of 1.67p per share (2014 total: 1.56p), to be paid on 20 May 2016. Its CEO, Pete Redfern commented "Against the backdrop of a positive housing market, Taylor Wimpey is performing well, with increased customer demand for our homes and good access to mortgages driving strong sales rates. With a strong forward order book and high-quality landbank, we are well positioned for the remainder of the year and beyond".
Our view: Taylor Wimpey announced a strong performance for the first four months of 2016 led, as expected, by continued positive demand for their new builds. Easier access to mortgages at competitive rates, together with various government subsidies schemes (such as help-to-buy) underpinned +14% customer demand. Taking advantage at this environment, the Group increased its current order book by +7.5% with value by +16.6%, compared to the first 15 weeks of FY2015. The Group had already forward sold c.70% demand for 2016 completions as at 24 April 2016. Taylor Wimpey remains a strongly managed and well positioned housebuilder. The Group stated that to date they have not experienced any impact on its trading derived from uncertainty surrounding the Brexit referendum due to the profile of its nationwide customer base. Management went on to note that, together with strong order book, "we are well equipped to react to any potential changes in the market that may be caused by the EU referendum". Such fears, have nevertheless been seen to overhang sentiment for the entire UK housebuilding sector that has considerably re-rated over the past 5-years and now finds itself very widely owned. In anticipation of this spurring a phase of profit taking, Beaufort downgraded its overweight stance on the entire sector some weeks back, during which time Taylor Wimpey was also from formally moved from 'Buy' to 'Hold'. Following yesterday's trading statement, Beaufort retains its 'Hold' rating on Taylor Wimpey, but recognises that the sharp correction recently experienced now prices in much of these concerns and considers confidence will likely return to the sector in the second half of 2016.
WPP (LON:WPP, 1,628p) - Buy
Yesterday, WPP issued a trading update for Q1 2016. The company's revenues increased 10.5% to £3.1bn, with constant currency growth of 9.0% and like-for-like (LFL) growth of 5.1%. Reported billings for the period were up 8.3% to £11.9bn and net sales were 6.7% higher on a constant currency basis. LFL revenue increased across regions and business sectors, with 6.9% growth in North America, 4.7% in the UK and 4.4% in Western Continental Europe. The contribution to the company's reported net sales from Asia-Pacific, Latin America, Africa, the Middle East and Central & Eastern Europe declined to 27.3% from 28.6% in Q1 2015, primarily due to the impact of lower growth in major fast developing markets than in mature Western markets. Among business sectors, Advertising and Media Investment Management witnessed LFL growth of 7.9%, with contribution from North America and Asia-Pacific. The division faced challenges in Western Continental Europe, where some of the restructuring costs incurred in recent years were directed. Data Investment Management's LFL revenue grew 0.5%, whereas that from Public Relations and Public Affairs expanded 2.3% for the period. The Group's branding and identity, healthcare and specialist communications divisions witnessed 4.7% rise in LFL revenue, making it the strongest performing sector. Moreover, during the period, the company completed 26 transactions: eight acquisitions and investments in new markets and 17 in quantitative and digital; eight were driven by individual client or agency needs.
Our view: WPP continued the growth momentum in 2016 as it beat revenue sales and profit targets for Q1 2016. The company performed well across business regions, with all business divisions witnessing positive LFL growth. Advertising and media investment management was the best performing business division, with revenues up 7.9% to £1.4bn and accounting for 44% of the revenue and net sales. Although there are concerns surrounding Brexit and its impact on the business of the company, performance is expected to improve in the second half of the year. The company's performance in 2016 is expected to be similar to that in 2015. Additionally the company's advertising division expected to earn more from several events, including Euro 2016, Rio Olympics, US presidential elections, among others. Going forward, the company aims to increase revenue and net sales faster than the industry average, driven by its leading position in new markets; new media; and data investment management, including data analytics and the application of technology, creativity and horizontality. Thus, in view of the overall progress made by the company, driven by strong presence in different markets, we maintain a Buy rating on the stock.
Economic news
Germany unemployment change
The number of people without a job in Germany fell by 16,000 in April compared to a revised decline of 2000 in March, the Federal Labour Agency said yesterday. Economists had forecasted unemployment change to remain unchanged for the month. The seasonally adjusted unemployment rate stood at 6.2%, similar to its previous reading a month ago.
Eurozone consumer confidence
The gauge of Eurozone consumer confidence remained unchanged at -9.3 in April, matching the preliminary estimates, the European Commission informed yesterday. The reading came in better than previous month's -9.7.
Germany CPI
Consumer prices in Germany rose 0.1% y-o-y in April 2016, down from a 0.3% increase in the previous month but matching preliminary estimates. On m-o-m basis, consumer prices fell 0.2% in April, after a 0.8% increase in March.
US initial jobless claims
Initial jobless claims in the US increased by 9,000 to a seasonally adjusted 257,000 in the week ended 23rd April, the Labor Department reported yesterday. Last week's claims were revised upwards to 248,000 from the earlier reading of 247,000. Economists, on the other hand, had expected a larger increase to 259,000. The four-week moving average dipped to 256,000 from the previous week's 260,750.
US GDP annualised
US real GDP grew at an annualised rate of 0.5% in Q1 2016, after rising 1.4% in the preceding quarter, the Commerce Department stated yesterday. The market expectation was a 0.7% expansion.