Today's edition features:
• McColl's Retail Group (LON:MCLS)
"With second quarter corporate earnings presently the principal driver of US equity sentiment, traders were taking not taking any big bets yesterday. The major averages closed mixed, with both the Dow Jones and S&P-500 fractionally in negative territory despite firm Financials, following disappointing existing home sales data and weak Oils while still smarting from Friday's disappointing reports from General Electric and EBAY; the NASDAQ by contrast held on to a modest gain as techs found buyers ahead of Alphabet's release post close. Emerging from the OPEC meeting, WTI crude prices advanced slightly for the first time in three sessions, up 0.6% to US$46.64 during the session, as news that Saudi Arabia had agreed to limit its exports to 6.6m bbl/day and Nigeria planned to restrict production emerged, although this move was not sufficient to significantly rally quoted oil majors in a market that traders believe still remains oversupplied. They also remain nervous ahead of Donald Trump's son-in-law, Jared Kushner, facing a second day in front of the Senate Committee today; while he denied any "improper contacts" or colluding with Russia in an 11-page written statement, many believe his grilling simply adds further downward pressure on an already tumbling US$ which, in turn reflects of the President's declining credibility and inability to deliver on 'market friendly' campaign pledges. Diverting attention from politics, however, this week's slew of scheduled results includes Caterpillar, General Motors and McDonald's today, followed by Boeing, Coca-Cola, Facebook and Ford on Wednesday, before Twitter, Amazon and Intel report on Thursday. Alphabet itself produced more consensus-beating revenue and net income numbers late yesterday and although seemingly taking the EU's giant US$2.7bn fine in its stride, the shares still traded down 3% in the after-market on fears that rising traffic acquisition costs could slow ad revenues. The scheduled FOMC meeting that starts on Wednesday is not expected to light any fireworks; Janet Yellen's semi-annual testimony has already taken the heat out of any near-term rate move expectation although, as always, traders will scrutinise the accompanying statement for any hint of change to existing expectations of 'gradual tightening' given four consecutive months of dull inflation numbers. Having trended higher in recent sessions, Treasuries yesterday saw modest weakness, taking the yield on the benchmark ten-year notes up by 1.8 basis points to 2.250%. Asian markets were mostly mixed to fractionally down late in their early morning session on Tuesday. The S&P/ASX 200 stood out, however, staging a reasonable rebound boosted by Financials and Oils having been sharply down yesterday, while just about all other local bourses saw low volumes despite Monday's injection of liquidity from China's Central Bank. European stocks fell Monday, setback early on by the EU Composite PMI Index falling to a six-month low of 55.8 against expectations of 56.2. Shares of German auto makers were also all distinctly weaker following a report that Volkswagen had asked Europe's antitrust watchdog to investigate decades of coordination efforts by the country's manufacturers amid growing concern they might have jointly breached antitrust regulations. Although Financials ended firmer, Ryanair (RYA.L) results spurred another spate of Airline sector profit-taking as analysts raised concerns of looming industry overcapacity leading to more intense ticket pricing pressure. The STOXX Europe 600 was off 0.24%, with the Xetra Dax off 0.25% standing out as the region's biggest loser while the FTSE MIB rose by 0.59%. London's FTSE-100 ended off 1% under similar pressure from Airlines, Oils and Consumer stocks after giant Reckitt Benckiser (RB..L) reduced its annual net revenue target. The UK today releases its CBI Industrial Trends Survey for July, while MPC Member Andrew Haldane is also due to make a speech. Nothing is expected from the EU, but the US is due to provide a good batch of numbers, including its weekly Redbook Index, the S&P/Case-Shiller Home Price Indices for May, the Richmond Fed Manufacturing Index for July and API Weekly Crude Oil Stock numbers. UK corporates due to report earnings or trading updates today include Provident Financial (PFG.L), Croda (CRDA.L), Fevertree Drinks (FEVR.L), Virgin Money (VM..L), Domino Pizza Group (DOM.L), and Fuller Smith & Turner (FSTA.L). Having been hit hard relative to its Continental peers yesterday and with Oils likely to recoup some of their losses as traders reflect on yesterday's OPEC announcement, London is likely to rebound somewhat this morning, with the FTSE-100 seen rising around 35 points in early trading."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 yesterday's session 1.01% lower at 7,377.73 whilst the FTSE AIM All-Share index was down 0.01% at 969.57. In continental Europe, the CAC-40 finished 0.20% higher at 5,127.70 whilst the DAX finished down 0.25% at 12,208.95.
Wall Street
In New York last night, the Dow Jones fell 0.31% to 21,513.17, the S&P-500 eased by 0.11% to 2,469.91, while the Nasdaq climbed 0.36% to reach a high of 6,410.81.
Asia
In Asian markets this morning, the Nikkei 225 was modestly lower at 19,967.75, while the Hang Seng was flat 26,849.76.
Oil
In early trade today, WTI crude was up 0.56% to $46.6 per barrel and Brent was 0.51% higher at $48.85 per barrel as OPEC looks to rebalance the market.
Headlines
Rise in personal loans dangerous, Bank of England official says
A sharp rise in personal loans could pose a danger to the UK economy, a Bank of England official has warned. Outstanding car loans, credit card balance transfers and personal loans have increased by 10% over the past year, the Bank's financial stability director Alex Brazier said. In contrast household incomes have risen by just 1.5%, he said. "Household debt - like most things that are good in moderation - can be dangerous in excess", Mr Brazier said. Mr Brazier, in a speech to the University of Liverpool's Institute for Risk and Uncertainty, added that this increase in debt was "dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy". He warned that High Street banks were at risk of entering "a spiral of complacency" about mounting consumer debt levels. "Lending standards can go from responsible to reckless very quickly. "The sorry fact is that as lenders think the risks they face are falling, the risks they - and the wider economy face - are actually growing," Mr Brazier added. Mr Brazier hinted that the Bank of England could force banks to take further safeguards against the risk of bad debts if it was deemed necessary.
Source: BBC News
Company news
McColl's Retail Group (LON:MCLS, 210.00p) – Hold
McColl's, one of the UK's leading convenience retailers, yesterday announced its Interim Results for the 26-week period ended 28 May 2017. During the period, management successfully integrated 298 quality convenience stores acquired from the Co-op, on time and on budget, with early trading performance in line with its expectations. Total revenue for the period was up 7.6% to £504.8m (2016: £469.2m), as the Group benefitted from the on-boarding of acquired stores, around two thirds of which were trading at the half year and all by the end of July. Like-for-like ('LFL') sales were up 0.2% in H1, with the figure up an exceptional 1.4% in Q2, in part supported by favourable weather and an evolving mix of growth products. Importantly, LFL performance in recently acquired and converted stores itself was up 2.8% in H1 and 3.8% in Q2, as result of which the improving trend in gross margin continued, up 90 basis points to 25.4% (2016: 24.5%). Adjusted EBITDA increased to £16.5m (2016: £16.0m), despite being impacted by £1.3m pre-opening costs relating to the acquisition, leading to adjusted earnings per share of 5.0p (2016: 6.1p); excluding pre-opening costs, eps would have been stable at 5.9p. Net debt at period end was £110.8m (2016: £42.3m) and the Board remains comfortable with this debt profile, which is in line with previously detailed expectations. The Interim dividend per share was maintained at 3.4p (2016: 3.4p).
Our View: Encouraging signs! McColl's is on-track to achieve full year results in line with management's expectations, which includes an expected material increase in sales and profits in H2 driven by the recently acquired stores. This will be underpinned by product mix and presentational initiatives as well as synergies coming from the consolidation including supply re-tendering terms agreed with NISA for the enlarged base. A half-year EBITDA was slightly ahead of last year despite absorbing Co-op-related pre-opening costs, together with evidence of progress across key convenience categories while also gaining market share in tobacco, suggests further gross margin improvement can be secured. Importantly also, McColl's newly commissioned research with IGD reinforces the understanding that convenience stores can and will be able to continue to enjoy strong growth going forward, in this case estimated at 18% to £47.1bn over the next five years. So convenience is certainly not going away, it's just becoming increasingly dominated by a smaller number of more sophisticated players that are capable of offering range and buying power that traditional 'mom n'pop' stores simply cannot. Given its wide and successful experience in identifying and integrating such opportunities amid an inexorable phase of closure and consolidation amongst the UK's highly fragmented base of independents, McColl's can be expected to identify further significant opportunities over the medium-term. The Group's operational scale and customer reach is also something that the national supermarkets are also likely to be keen to tap into. Such a background provides a vision for the Group that is belied by its current rating. Estimating adjusted earnings of 17.5p for this year followed by 22.2p for next, the Group is rated on 11.8x and 9.4x, while offering shareholders yields 5.1% and 5.3% respectively. Beaufort upgrades its recommendation on McColl's to Hold (from Sell) with a re-set price target of 220p/share (from 150p/share).
Ryanair Holdings (LON:RYA, EUR17.85) – Buy
Ryanair, a low-cost European short-haul airline company, yesterday provided its results for the 3 months ended 30 June 2017 ('Q1 FY2018'). During the period, passenger traffic advanced by +12% to 35 million customers, while the load factor improved +2% to 96%, against the comparative period (Q1 FY2017). As average fares rose by +1% to €40.30, this has resulted revenue increased by +13% to €1,910m. The Group reduced unit costs by -6% (-3% excluding fuel) and improved net margin by +6%, resulting profit after tax to increase by +55% to €397m. Together with this, as a result of €200m share buyback during the period, basic earnings per shares jumped by +63% to €32.66. Despite the net capital expenditure of €400m and share buyback, the Group reduced period-end net debt by €150m to €94m against end-FY2017. Cash and cash equivalents at the period-end stood at €1,034.3m (Q1 FY2017: €1,033.2m). On the operational front, Ryanair took delivery of 14 new B737 aircrafts during the period to a total of 397, with 10 further B737-MAX-200 "Game Changer" aircraft ordered for 2019 and 2010 delivery.
Our View: Ryanair's KPIs for the first quarter were strong once again, although remaining broadly in line with management guidance. Whilst overall revenue increased, this has been somewhat offset by weaker Sterling, lower bag revenue (more customers switch to its '2 free carry-on bag' policy instead of paid checked bag), along with yield mitigation measures following terrorist attack in Manchester and London. Despite this, profit after tax topped expectations, soaring by +55% due to the timing of Easter which boosted the passenger number and increased average fare (+1% to €40 per passenger). Looking ahead, subject to normal level of disruptions, Ryanair is targeting passenger traffic of 131 million (previously: 130 million) for the full year (H1: c.+11%, H2: c.+7%), while Load Factor expected to remain flat at 94% in FY2018. For the H1, the Group continue to guide passenger traffic growth of c.+11% and average fare decline of -5%. For the H2, the Board maintained its expectation of passenger traffic growth of c.+7% and average fare decline of -8%. Average fares are expected to decline by -5% to -7% for the full year (H1: c.-5%, H2: c.-8%), amid a persistently competitive pricing environment. Outlook for the FY2018 fuel savings remained at €70m, with unit costs excluding fuel decline of -1%. Altogether, these results translate into profit after tax guidance maintained in the range of €1.40bn to €1.45bn for the full year, subject to close-in summer bookings, H2 average fares, and the absence of any further security events, ATC strikes or negative Brexit developments. Beaufort remains encouraged by the Group's ability continuing to offer lower fares while improving its profit, backed by its capability to reduce ex-fuel unit costs and thereby achieve "lowest passenger costs" amongst its EU competitors. This gap between Ryanair and its rivals should enable Group to maintain its current momentum and continue winning market share. In light of its ongoing expansion, Beaufort retains its Buy rating on Ryanair shares, treating the recent spate of profit taking across the sector (that was spurred by last week's easyJet results raising the spectre of looming overcapacity and yield pressure) as a buying opportunity.