Today's edition features:
ASOS (LON:ASC)
JD Sports Fashion (LON:JD)
"Seemingly never tiring of controversy while building a cabinet that appears keen to air its obvious divisions, Trump threw another googly over the weekend. With some concern that he is 'making it up as he goes along', in an interview with The Sunday Times newspaper, the President-elect suggested he will ensure the US offers the UK a wide-reaching trade deal that 'We're going to work very hard to get it done quickly and properly.' Having stated his view that 'Brexit is going to end up being a great thing' while predicting other countries will also leave the bloc, he noted such a bi-lateral deal would be 'Good for both sides' advising that he planned to meet with Theresa May soon after he gets to the White House. Back on Planet Earth, of course, things are never that simple; such negotiations usually take diplomats between 4 and 8 years to negotiated the fine detail and, in any case, the UK government remains bound by EU law that precludes such independent negotiation until withdrawal is formalised in, perhaps, 24 to 36 months from now. Given also the fact that the US accounts for less than 15% of total UK trade, compared with the EU which makes up roughly half of its international business, the proposal provides limited comfort at a time when the Chancellor, Philip Hammond, is being forced to recognise that the UK could change its economic model if it is not granted access. The net result of his German press interview was to again raise the spectre of a 'Hard Brexit', which saw Sterling knocked again during Asian trading. This news nevertheless is seen pushing London equities ahead this morning, with the internationally-biased FTSE100 expected to open up 10 or so points in early trading, despite the fact that the overnight markets mostly ended mixed to lower. The Dow Jones and S&P500 closed fractionally either side of unchanged, leaving only the NASDAQ to put in a creditable gain. Asia responded to Trump's continuing rhetoric, with the Nikkei suffering from gains in the Yen while Chinese traders, listening to Trump's latest rant regarding the potential imposition of a 35% border tax on BMW motor cars, remained nervous ahead of Friday's inauguration, leaving only the commodity-heavy ASX to bask in the glow of a strong US$. European trading will be relatively light today, given that the US markets will be closed for Martin Luther King Day, but investors will nevertheless look to the release of the IMF World Economic Outlook report for insights, while the Governor of the Bank of England, Mark Carney, is also due to speak at the LSE on policy issues. UK corporates due to release earnings or trading updates include Ashmore (ASHM.L), Ibstock (IBST.L) and WANDisco (WAND.L)."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished Friday's session 0.62% higher at 7,337.81, whilst the FTSE AIM All-Share index closed 0.42% higher at 873.94. In continental Europe, the CAC-40 finished 1.20% higher at 4,922.49 whilst the DAX was 0.94% better-off at 11,629.18.
Wall Street
In New York on Friday, the Dow Jones fell 0.03% to 19,885.73, the S&P-500 added 0.18% to finish on 2,274.64 and the Nasdaq gained 0.48% to stand at 5,574.12 .
Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.86% to 19,121.88, while the Hang Seng lost 1.03% to 22,701.43.
Oil
In early trade today, WTI crude was up 0.21% to $52.48/bbl and Brent was ahead 0.23% to $55.58/bbl.
Headlines
Pound falls ahead of Theresa May Brexit speech
The pound has hit its lowest level for more than three months on reports Britain was set to quit the EU single market as part of its Brexit plans. Sterling fell below $1.20 before bouncing back slightly on Monday. The pound also dropped to a two-month low against the euro, falling more than 1% to about €1.13 in Asian trading. Analysts said traders were reacting to reports that UK Prime Minister Theresa May would use a speech on Tuesday to signal a so-called "hard Brexit". That is a term used to imply prioritising migration controls over single market access. The pound has fallen about 20% against the dollar since June's EU referendum, to lows last regularly seen in 1985. Much of that volatility has been due to uncertainty about the economic impact if the UK gives up its tariff-free access to the EU.
Source: BBC News
Company news
ASOS (LON:ASC, 5,473.00p) – Buy
ASOS, a global online fashion retailer, on Thursday provided a trading update for the 4 months ended 31 December 2016. During the period, on a reported basis, total retail sales advanced by +36% to £605.7m, comprised of +18% growth in the UK to £244.0m and +52% growth international to £361.7m. Within international retail sales, US saw +66% growth to £82.7m, EU rose +49% to £165.8m, while Rest of World ('ROW') recorded +46% growth to £113.2m. The Group said retail gross margin has fallen by -0.3%, as expected. ASOS's CEO, Nick Beighton, commented "Following record sales over Cyber weekend and the Christmas trading period, I'm pleased to report a strong start to the year. A 50% plus increase in international sales is a standout performance. UK sales growth at 18% was a strong performance in a more promotional market.".
Our view: ASOS delivered a good performance for the period. The Group recorded solid growth across all regions, especially strong outside the UK, particularly in ROW, supported by reinvestment of the FX tailwind resulting from Sterling weakness as well as US import duty benefits. UK sales growth was slightly weaker than expected, however, within more a promotional market place. Looking down the KPIs, the Group has expanded its number of active customers by +25% year-on-year, with both average basket value and average order frequency improved by +2% and +6%, respectively. Given the strong year-to-date performance, the Group has upgraded its reported sales growth guidance for FY2017 to c.25-30% from 20-25% previously. While capex estimate was raised to £150-170m from £120-140m, the Group noted that it is confident to deliver current market consensus pre-tax profit expectation of c.£64m for the full year. Medium-term reported sales growth guidance remained unchanged at c.20-25% per annum. Beaufort expects the UK performance will likely to remain impacted by relatively dull consumer confidence and rising costs, but stronger international sales, which now stands at 60% of the total retail sales, will accelerate the Group forward. We are encouraged by the Group's progress and believe it has the momentum for further growth. Beaufort has therefore decided to upgraded the ASOS from Hold to Buy, although we reiterate our continuing preference for boohoo.com over ASOS.
JD Sports Fashion (LON:JD, 355.00p) – Buy
JD Sports Fashion ('JD Sports'), the leading retailer of sports, fashion and outdoor brands, on Thursday provided a Christmas trading update. The Group said its positive trading has continued through the H2 of the year with the cumulative like-for-like ('LFL') store sales growth for the 49 weeks to 7 January 2017 across all Group fascias maintained at c.+10%. The Board consequently said that headline pre-tax profit for the FY2017 will exceed current consensus market expectations of £200m by up to +15%. JD Sports' Executive Chairman, Peter Cowgill, commented "I am delighted to report that we have maintained our excellent momentum from the first half of the year. Whilst we acknowledge that it would be unreasonable to expect like for like sales growth to be maintained at recent levels for a fifth consecutive year, we are confident that both domestically and internationally, our unique and often exclusive sports fashion premium brand offer provides a solid foundation for future development." The Group will announce Preliminary Results for the 52 weeks ending 28 January 2017 on 11 April 2017.
Our view: JD Sports continue to deliver strong performance during the key Christmas trading period. Its cumulative LFL sales growth for the 49 weeks to 7 January 2017 was maintained at c.+10%, the same level to the H1 FY2017, despite the strong comparatives in the previous three years. At the interim result announced on 13 September 2016, the Group reported a +73% increase in pre-tax profit along with improved gross margin, which was helped by stronger Euro on JD's Euro denominated businesses, while its balance sheet remains strong with £231.8m net cash. Looking ahead, although a weaker Sterling against the US dollar will likely cause some margin headwinds in 2017, the Group stated that it already has some strategy in place to mitigate the effects. We are encouraged by the Group's continuing progress and believe it remains sufficiently financed to continue its international expansion, particularly in Europe, Malaysia and Australia, without recourse to shareholders. Given that the Group confidently upgraded its pre-tax profit market expectation of £200m by up to +15%, Beaufort maintains its Buy rating on the shares.
Mitchells & Butlers (LON:MAB, 264.70p) – Hold
Mitchells & Butlers ('M&B'), a leading operator of managed restaurants and pubs in the UK, on Friday provided a trading statement for the 15 weeks ended 7 January 2017 ('Q1 FY2017'). During the period, total sales advanced by +2.3% against the comparable period (Q1 FY2016), while on like-for-like ('LFL') basis, sales increased by +1.7% with LFL Food sales up +1.6% and LFL Drink sales rose +1.7%. The Group said trading over the festive period was "particularly strong across all brands" that LFL sales grew +4.7% for the 4 weeks ended 7 January 2017. M&B opened one new site and completed 69 conversions and remodels during the period, and the Group said it expect to complete around 300 remodels and conversions for the full year. M&B's CEO, Phil Urban, commented "This is an encouraging performance, building on positive momentum from earlier in the year. We are starting to benefit from the many initiatives we continue to put in place, which gives us confidence in successfully delivering our strategic priorities going into the new year and a performance in line with the Board's expectations."
Our view: M&B delivered solid LFL sales growth during the period, helped by strong Christmas and New Year trading performance. The Group has reiterated, however, that it is expecting a downward pressure on margins in the current financial year. This is due to the rising cost headwinds for the sector due to the first full year of the National Living Wage, indications of two potential increases in the National Minimum Wage, the impact of exchange rate movements bearing on foreign currency c.£100m denominated purchases, and the recent business rates review. We expect 2017E will see +1% LFL growth and operating margins marginally down to 15.1%, a pre-tax profit of the order £184m appears achievable, although the near-term risk clearly remains to the downside. M&B is clearly poised for recovery targeting site remodeling and conversions of over 300 per year while also reducing its investment cycle back to seven or less years. This is sound enough, but the various calls on Group cashflow (bond amortisation, capex, pension calls, etc.) are likely to provide a continuing brake on the bottom line and management's ability to significantly bolster the dividend. The shares are valued at a 2017E and 2018E P/E multiple of 7.7x and 7.6x, along with a dividend yield of 2.8% and 2.9%, respectively, having bounced quite strongly from its sharp fall back in end-November following its FY2016 results announcement. We will continue to monitor delivery of its ambitious strategic plan that was set back in May 2015 to increase the level of investment to create a more premium estate. Beaufort reiterate its Hold rating on the shares for now.