Today's edition features:
"FOMC minutes sharply reversed US stocks gains that had been won earlier in market session following release of positive payroll data. Also weighing on risk sentiment were comments from U.S. House Speaker Paul Ryan, suggesting that the executive and legislative branches of government were not in sync on tax policy. Nine of the S&P-500's eleven sectors finished lower as a result, with only defensives like utilities and real estate remaining positive. The principal surprise from the Committee's March policy meeting was agreement on shrinkage of its US$4.5tr portfolio of Treasuries and Mortgage Securities later this year, although the exact pace remains uncertain. From a markets perspective, this amounts to a rate hike as the Fed will effectively be restricting available capital much earlier than investors had been anticipating. All the principal US indices fell into the red as a result, after having seen the NASDAQ touch a new record intraday high shortly after opening. Early optimism had come from payroll processor ADP's surprisingly strong release showing private sector job growth in the month of March soaring by 263,000 jobs, compared to consensus estimates of about 187,000 jobs. Activity was broadly based, particularly across production which includes key economic areas like construction, manufacturing and mining. Not that all US macro data were rosy yesterday; the ISM, for example, detailed its non-manufacturing index dropping to 55.2 in March from 57.6 in February and an expectation of 57.0, confirming recent concerns that it is now becoming difficult to for the economy to continue surprising on the upside. Higher than anticipated US weekly oil inventories also took the shine off energy stocks that had made a strong start to the session. With US futures remaining in the negative following the US close, Asian equities also took fright with the Nikkei leading the region sharply down, hitting a four-month low, as the US$ tumbled, taking the ASX and Hang Seng with it, leaving only the Shanghai Composite still with minor gains ahead of the start of key talks between the leaders of the two countries that start today. There are no UK macro releases scheduled for today, although the EU provides accounts from the ECB Monetary Policy Meeting, which is followed by a speech from the ECB President at 20:00hrs GMT. The US provides Continuing Jobless Claims and later a FOMC Member speech from John Williams; President Trump also meets with Chinese leader Xi-Jinping today, although no press announcement is scheduled. The FTSE-100 closes 0.13% higher on Wednesday, as the Pound recovered on receipt of better than expected PMI Services data that demonstrated financials plugging the gap opened by lacklustre consumers during March. The UK index's high weighting of miners and Oils meant it found support from Chinese traders boosting metals prices and firm crude during the trading session. Following yesterday's otherwise relatively sanguine day for European bourses, however, equities will be rather shaken by the overnight new, with the FTSE-100 seen losing 50 points in opening trade."
- Barry Gibb, Research Analyst
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Markets
Europe
The FTSE-100 finished yesterday's session 0.14% higher at 7,331.68, whilst the FTSE AIM All-Share index shed 0.06% to stand at 930.35. In continental Europe, the CAC-40 finished down 0.18% at 5,091,85 whilst the DAX was 0.53% lower at 12,217.54.
Wall Street
In New York last night, the Dow Jones fell 0.2% to 20,648.15, the S&P-500 lost 0.31% to 2,352.95 and the Nasdaq eased 0.58% to 5,864.48.
Asia
In Asian markets this morning, the Nikkei 225 had fallen 1.64% to 18,552.55, while the Hang Seng lost 0.6% to 24,255.26.
Oil
In early trade today, WTI crude was down 0.57% to $50.86/bbl and Brent was down 0.53% to $54.07/bbl.
Headlines
Criminal gangs use UK ports to defraud EU customs
Systematic failures by UK customs officials have allowed criminal gangs to defraud the European Union of at least £2bn in just four years plus billions more in lost VAT, the EU anti-fraud office OLAF has claimed. Olaf said failures by Customs and Excise had cost at least 5.2bn euros (£4.5bn) in lost duties and VAT. The losses relate to clothing and footwear exported mainly from China. An HMRC spokesman said its experts did not recognise OLAF's estimates. As a result it planned to challenge them, he added. Ernesto Bianchi, investigations director for OLAF, said: "In the last year we have seen a concentration of the fraud pattern and we have calculated that roughly 79.9% of the losses in customs duties are made through declarations made in UK ports. "These are estimates, of course, because the fraud is perpetrated by a particular type of scheme where the companies actually disappear." The EU may order the UK to pay back the lost customs duties, estimated at about 2bn euros (£1.7bn).
Source: BBC News
Company news
HSS Hire Group (LON:HSS, 59.50p) – Speculative Buy
HSS Hire ('HSS'), a leading provider of tool and equipment hire and related services in the UK and Ireland, yesterday announced its results for the full year ended 31 December 2016 ('FY2016'). During the period, revenue advanced by +9.6% to £342.4m, against the comparative period (FY2015). On a statutory basis, the Group recorded an operating loss of £2.7m (FY2015: profit £6.8m), loss before tax of £17.4m (FY2015: loss £13.8m) and loss per share of 11.18p (FY2015: loss 9.86p). On an adjusted basis (amortisation and exceptional costs added back), due to fall in EBITA margin by -0.5% to 6.0%, EBITA increased by +1.0% to £20.5m. Adjusted pre-tax profit remained flat at £5.8m and earnings per share fell by -8.1% to 2.94p. Net debt at the period end stood at £219.4m, in line with last year. The Group has facility and cash headroom in excess of £42m as at 31 December 2016. ROCE was at 9.7% (FY2015: 11.2%). On the operational front, HSS improved its core fleet utilisation by +2% to 50%, and specialise utilisation has been maintained at mid-70%. HSS has made significant investment in new distribution network structure during the year, including; 1) implementation of new central distribution and engineering capability across England & Wales with ongoing optimisation; 2) initiation of network 'right-sizing' plan with 18 under-performing branches closed in Q4 2016; and 3) consolidation of distribution centre network with net 7 distribution centres closures. HSS Hire's CEO, John Gill, commented "2016 was a year of significant operational change and investment for the Group. With our new platform in place that we can now optimise and then leverage, we are firmly focused on pressing home our competitive advantage to drive growth in Rental revenues, particularly in our smaller and medium sized accounts". The Group did not pay final dividend, therefore total dividend paid during FY2016 is interim dividend of 0.57p per share.
Our view: HSS delivered results for the FY2016 broadly in line with expectations, although its management statement left investors somewhat disappointed as consensus expectations were lowered. Adjusted EBITA increased by +1.0% to £20.5m (Beaufort Estimate: £21.0m), adjusted pre-tax profit remained flat, while statutory pre-tax loss widened by £3.6m to £17.4m, latter reflecting an investment in new distribution network structure, including non-finance exceptional costs of £17.0m. On the other hand, the Group delivered revenue growth of +9.6%, significantly above the UK tool and equipment hire market growth rate of +2.8% for 2016 (Source: European Rental Association), increased its market share in UK and Ireland. This was helped by flat rental revenue but strong increase in service revenue by +60.8%. The Group has reduced its capex (fixed asset additions) actively by -50% to £42.4m and made significant operational investment. With the £13m proceeds of placing in December, as well as halted final dividend, the Group has reduced its net debt by £21m in the Q4, resulting only marginal net debt increase at the period end to £219.4m, implying net debt to EBITDA of 3.1x. Looking ahead, the Group said it will carry on its operating model optimisation during H1 FY2017, but is expected to see EBITA growth weighted toward H2, supported by improving Rental revenue momentum along continued cost reduction. Given flat revenue due to continue branches closures and reduced profit expected in H1 which will then slightly mitigated in H2, Beaufort has cut FY2017E EBITA estimate from £25.2m to £17.3m, suggesting pre-tax-profits (post debt servicing) of £4m and earning per share of 2.0p. The market environment remains highly competitive on price and FY2017 is expected to be another challenging year for the HSS, however, we remain speculative that its much-discussed takeover of HSS Hire by Speedy Hire remains on table, given former's share price underperformed latter by some -21% and December's placing increased Toscafund's shareholding in HSS to 25.49%. Russell Down, Speedy's CEO, always insisted that he rebuffed Toscafund's original proposal of merging the two operations because their timing wasn't right, but never formally ruled out such an approach in the future. A combined entity, as well as potentially accruing significant operational savings would, in theory, be considerably less cyclically exposed. In view of this, Beaufort retains its Speculative Buy rating on HSS Hire shares.