The markets
Europe
The FTSE-100 finished yesterday's session 0.03% lower at 6,165.80, whilst the FTSE AIM All-Share index closed 0.13% down at 725.13. In Europe, equities ended in the green, led by a rebound in banking stocks. Investors digested a mixed set of corporate earnings reported yesterday. Germany's DAX and France's CAC 40 rose 0.5% each
Wall Street
Wall Street gave up early gains and ended broadly unchanged after the Fed's minutes of meeting raised the possibility of an interest rate hike in June. The S&P 500 closed flat; the financial, technology and healthcare sectors led gainers, whereas utilities lost the most.
Asia
Markets are trading lower, taking negative cues from increased prospects of an interest rate hike by the Fed in June. In addition, a decline in oil and commodity prices exerted pressure on basic resource stocks. The Nikkei 225 closed flat and the Hang Seng was trading 0.5% down at 7:00 am.
Oil
Yesterday, Brent and WTI oil prices dropped 0.7% and 0.2%, respectively. The spread between the two varieties stood at US$0.7 per barrel.
Headlines
UK's unemployment rate remains stable in three months to March
As per the data from the Office for National Statistics, the UK's unemployment rate remained unchanged at 5.1% in the three months to March. The number of people at work increased by 44,000 to 31.58 million. Moreover, the employment rate stood at 74.2%, the highest level since the records began in 1971.
Company news
ARM Holdings (LON:ARM, 946.0p) - Buy
Yesterday, ARM Holdings acquired Apical Limited for a total cash consideration of US$350m. Apical is a global leader in imaging and embedded computer vision intellectual property (IP) products.
Our view: The acquisition of Apical is a positive development for ARM Holdings. Apical is one of the fastest growing technology companies in the UK, with its advanced imaging products used in more than 1.5 billion smartphones and around 300 million other consumer devices including IP cameras, digital stills cameras and tablets. The acquisition is expected to boost ARM Holdings' entry into new markets such as connected vehicles, robotics, smart cities, security systems, industrial applications and Internet of Things devices. ARM Holdings reported robust results for Q1 2016, with improved revenues and margins. The company's licensing pipeline for the remaining year looks strong, with leading companies vying to license the ARM technology for their next-generation products. We expect the ARMv8-A technology to continue penetrating the mobile and enterprise markets, and the high royalty rate earned on these products is expected to underpin future royalty revenues. Thus, considering the strong demand for the company's next-generation products, we expect it to explore new opportunities and create new revenue streams. In light of the above argument, we maintain a Buy rating on the stock.
Burberry (LON:BRBY, 1,112.0p) - Hold
Yesterday, Burberry announced its preliminary results for the year ended 31st March 2016. During the period, revenues remained flat at £2.5bn. Pre-tax profit fell 7% to £415.6m, resulting in an EPS of 69.9p compared with 76.9p in the previous year. Net cash increased by £108m to £660m. The company has declared a final dividend of 26.8p, bringing full year dividend to 37p, up 5% over the previous year. Burberry would also start a share buyback programme of up to £150m from FY 2017 onward.
Our view: Burberry delivered below par performance in FY 2016, with poor sales in Hong Kong and Macau. The company's margins were also impacted by a decline in Chinese tourists visiting its stores in Europe. Burberry's weak results directly impacted its share price, which fell more than 35% in the last 12 months. In lieu of the challenging market for the luxury sector, Burberry has announced a cost savings programme expected to achieve at least an annualised £100m by 2019. The company plans to reduce operating expenses and improve efficiency in areas such as marketing. Burberry would re-launch its website and introduce a customer mobile app that allows mobile checkouts. The company would also invest more in training staff and hire 20% more private client sales associates. Nonetheless, Burberry continues to face intense competition in a slowing market, and it would take some time for its initiatives to turn fruitful. In view of the mixed outlook, we maintain a Hold rating on the stock.
Marston's (LON:MARS, 152.80p) - Buy
Marston's issued their interims yesterday and they make very good reading, with Revenue, Profit before tax and earnings Per Share all up 12%. Like-for-like sales growth was 3% across the managed and franchised pubs and seven pubs and three lodges were opened in the period. The first new-build Tavern was successfully opened under franchise model. The high quality Leased business delivered like-for-like profit and rental growth, with the average profit per pub up 13% in 2016, up 44% since 2012.
Our view: This is a very good set of numbers from Marston's and we would normally consider an upgrade in profit but second half comparatives are tough. Having said that the P/E to September 2016 is 11x and falling to 10 in 2017 is not excessive and throw in a 5% dividend makes the stock attractive and we reiterate our Buy stance on Marston's.
Patisserie Holdings (LON:CAKE, 354.25p) - Buy
Patisserie Holdings ('Patisserie'), a leading UK branded café and casual dining group, yesterday announced its interim results for the 6 months ended 31 March 2016. During the period, revenue advanced +14.4% to £50m and EBITDA rose +21.3% to £10.6m against comparable period (H1 2015). Pre-tax profit jumped +20.6% to £8.4m, resulting basic earnings per share expanded to 6.68p per share, up +21.5%. Both cash and cash equivalent at the end of the period and operating cashflow stood at £8.9m. On the operational front, Patisserie opened 12 new stores bringing to total of 177 stores at the period end. Patisserie's Executive Chairman, Luke Johnson commented "The Group has continued to deliver strong growth in sales and profit in what is a competitive trading environment. Our pipeline for new stores is well developed and I look forward to another period of strong growth in the second half of the year". The Group declared first interim dividend, since its listing in May 2014, of 1p per share which will be paid on 24 June 2016.
Our view: Patisserie delivered strong financial and operational performances during the H1 2016, continuing the positive trend seen during FY2015. Patisserie delivered a jump in revenues, which was led by Patisserie Valerie, its largest platform, expanding by +21.1%. Retail brands - Druckers and Baker & Spice - went up by +4.6% and Flour Power City, the wholesale bakery, rose by +12.5%, while Philpotts, the premium sandwich retailer fell -2% due to negative impact of earlier timing of Easter and a higher margin corporate sale. Although the Group noted increased cost pressure during the period, as well as the effect of National Living Wage kicks-in in the H2, a number of measures to mitigate this are already in place delivering efficiencies and cost savings, particularly in the supply chain. The Group improve its gross profit margin by +1%, meaning the "overall cost base will remain stable to the year-end". Patisserie enjoys a healthy balance sheet, remains solely funded from its reserves and operating cashflows, and declared its first interim dividend to shareholders. Its Board has also committed to a progressive dividend policy. Looking ahead, the Group remain focused on opening more stores and new product development, while continuing to assess acquisition opportunities. We are encouraged by the Patisserie's performance and reiterate our Buy rating on the stock.
UBM (LON:UBM, 567.0p) - Buy
The Company gave a trading update yesterday with business performing in line with the Company's expectations. The largest events continue to drive performance, most notably Game Developers Conference, MAGICVegas, Enterprise Connect, MD&M West and Hotelex/FineFoods. As previously indicated, Ecobuild revenue declined owing to the challenges facing the UK solar industry and some smaller shows, particularly in the jewellery sector, are seeing some weakness. Other Marketing Services performed in line with expectations. The Advanstar business continues to perform ahead of its acquisition case. Further progress has been made implementing the strategy with the first events transitioning onto the new Customer Relationship Management (CRM) platform and procurement savings on target. Integration of the recent Business Journals Inc acquisition is underway. During the period UBM paid £17.5m to Axio Data Group Holdings to settle the warranty claim in relation to the sale of the Delta businesses in 2013.
Our view: On 12 May UBM announced that Innodata Inc has agreed to acquire the assets and rights to PR Newswire's Agility business. The sale of Agility is contingent on completion of the sale of PR Newswire to Cision, which remains subject to Hart-Scott-Rodino antitrust clearance in the US and the satisfaction of other customary closing conditions. Other than that delay, things are on track and recent weakness may present a buying opportunity, so we retain our Buy stance on UBM.
Economic news
UK claimant count rate
The claimant-count rate in the UK fell to 2.1% in April from 2.2% in March. This was in line with the market expectations.
Eurozone CPI
Consumer price inflation (CPI) in the Eurozone remained flat in April, after a 1.2% rise in March, as per the data released by Eurostat yesterday. On y-o-y basis, CPI fell 0.2% in April, following a similar drop in March. Core prices, excluding energy, food, and tobacco, grew 0.7% y-o-y in April.
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, fell 1.6% w-o-w in the week ended 13th May, after a 0.4% increase in the preceding week, the Mortgage Bankers Association said yesterday. However, the mortgage application for refinance increased 1% from the previous week.