Markets
Europe
The FTSE-100 finished yesterday's session 0.27% higher at 6,301.52, whilst the FTSE AIM All-Share index closed 0.03% better-off at 744.64. In continental Europe, markets ended in the red amid losses in banking and auto stocks. Investor sentiment dampened owing to poor Chinese export data and a cut in 2016 global growth forecast by the World Bank. Germany’s DAX and France’s CAC 40 declined 0.7% and 0.6%, respectively.
Wall Street
Wall Street ended in the green, as investors turned their focus from the possible interest rate hike to the ongoing rally in oil prices. Moreover, the weakening of the US dollar fuelled buying. The S&P 500 advanced 0.3%, led by the industrials sector.
Asia
Equities are trading lower, as the improvement in oil prices was overturned by the strengthening of local currencies against the US dollar. The Nikkei 225 declined 1.0%, as a stronger yen resulted in losses for export stocks. The Hang Seng Index remained closed on account of the Hong Kong Special Administrative Region Establishment Day.
Oil
Yesterday, Brent and WTI prices rose 2.1% and 1.7%, respectively. The spread between the two varieties stood at US$1.3 per barrel
Headlines
UK house price balance tumbles in May: RICS
According to the Royal Institution of Chartered Surveyors (RICS), the UK house price balance declined to +19 in May from a revised +39 in April. The decline was due to the uncertainty surrounding the potential for a British exit from the European Union in referendum on 23rd June 2016.
Company news
boohoo.com (LON:BOO, 56.25p) - Buy
boohoo.com (‘boohoo’), one of the UK’s largest online own-brand fashion retailers, yesterday provided trading update for the 3 months ended 31 May 2016 (Q1 FY2017). During the period, total revenue advanced +41% to £58.2m, where revenue for the UK, rest of Europe (‘ROE’) and rest of world (‘ROW’) increased by +42%, +40%, and +37%, respectively, against the comparable period (Q1 FY2016). Revenue growth in the UK was supported by the strong sales performance from third party internet retailers. Gross margin declined by -160 basis points (or -1.6%) to 56% year to date, due to planned investments in price and customer proposition, which was offset to some extent by reduced marketing expenditure as a percentage of sales. Cash balance at the period end stood at £61m. On the operational front, number of active customers (who shopped during the period) has grown to 4.2 million, up +30% compared to the previous year with accelerated international growth now stands at 36% of total revenue (FY2016: 33.4%). The Group continued its warehouse expansion programme with the fit-out of three additional mezzanine floors almost complete and planning for a new site adjacent to the current, now underway. boohoo’s joint CEOs, Mahmud Kamani and Carol Kane commented “We are encouraged by our performance in the first quarter. We now expect sales growth for the financial year of between 25% and 30%. We expect EBITDA margins in line with last year although we will look at opportunities to drive incremental growth by investing in the customer proposition and our international markets. We continue to execute on our strategy and refine our ecommerce platform to deliver a market-leading shopping experience for fashionable product at incredible prices”.
Our view: boohoo recorded strong start of the FY2017. The Group expanded revenue across all regions, particularly strong in the UK as its strategy to expand third party sales turned very positive. The expansion in the number of partners helped to build its brand internationally and broaden customer reach. The Group now see 36% of its revenue outside of UK and it continued to gather momentum (given UK sales also growing well). Although increased third party sales along with planned investments in price and customer proposition have reduced the overall gross margin, as expected. Reduced marketing expenditure has offset some of this reduction and the Group said it will continued to work to build customer lifetime value. During the period, number of active customers, order frequency, basket size and conversion all increased, and boohoo continued to broaden its product range, increased fashion appeal and offered attractive prices to customers. With this in mind, together with adjusted EBITDA margin expected to be maintained at 9.6% and Board’s confidence in upgrading full year sales growth of between +25% to +30% (previous guidance stated c.+25%), we think it still has an upside potential at current share price level. We believe worldwide market for internet fashion sales will continues to expand as shopping preferences shift towards convenience and competitive pricing affordable by internet retailers, like of boohoo. Beaufort reiterate its Buy rating on the stock.
Sainsbury (LON:SBRY, 250.60p) - Hold
Yesterday, Sainsbury released a trading update for the 12 weeks to 4th June 2016 (Q1 FY 2017). During the period, retail sales excluding fuel increased 0.3%, while like-for-like (LFL) retail sales dropped 0.8%. Retail sales including fuel decreased 0.1% and 1.0% on a LFL basis. Sainsbury ended its Brand Match campaign, in which it had lowered prices of everyday products. The company has reduced the promotional participation levels to 23% (down from over 30% at this time last year). Sainsbury expanded its allergen-free food range, Deliciously FreeFrom. The new range of products includes more allergen-specific groups such as nut, gluten, wheat, milk, egg and soya. Groceries Online performed well, with about 8% growth in sales and around 13% increase in orders.
Our view: Sainsbury’s performance in Q1 FY 2017 was below average amid difficult market conditions. The company’s sales were impacted after it reduced food promotions in favour of a simpler pricing structure to compete with discount rivals. On the positive side, Sainsbury continued investments in improving the quality and range of its own-brand food and non-food products. Clothing and merchandise sales grew around 5% each. Sainsbury’s Bank continued its momentum, as it recorded a 28% increase in Travel Money transactions and 10% rise in the take-up of Travel Insurance. The company launched a groceries online app to enhance customer experience. Nonetheless, the grocery market recently slowed amid intense competition among market players. Additionally, food deflation and pressure on pricing continue to make the business environment challenging. Thus, in view of the overall uncertainty surrounding the UK’s retail market, we maintain a Hold rating on the stock.
Economic news
UK industrial production
UK industrial production increased 2.0% m-o-m in April, after a 0.3% rise in March, the Office for National Statistics reported yesterday. Markets were expecting no change in the production. On a y-o-y basis, industrial production surged 1.6% in April, after 0.2% fall in March.
UK manufacturing production
The Office for National Statistics reported that the UK manufacturing output rose 2.3% m-o-m in April, after a 0.1% increase in March. The markets expected a 0.1% fall in production. On a y-o-y basis, manufacturing output surged 0.8% in April, after a 1.9% fall in the previous month, beating the market expectations of a 1.5% decline in production.
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, increased 9.3% w-o-w in the week ended 3rd June, after a 4.1% decline in the preceding week, the Mortgage Bankers Association said yesterday.