Global equities in mixed minds about vaccine, retail sales and US stimulus

Jamie Gordon
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Global equities in mixed minds about vaccine, retail sales and US stimulus
Unsure of what to do with themselves after a mixed week, global equities posted relatively modest movements as they responded to a varied bag of news updates on vaccine updates, retail sales and US stimulus. Between Pfizer and Moderna one-upping each-other with positive news, markets have been spurred on since the booming US election week. As with last week, however, Monday vaccine hopes were balanced out by manageable price corrections later in the week. Now, awaiting trial results from a pivotal player – AstraZeneca – global equities find themselves in something of a consolidation phase. Not willing to factor in the difficulties of mass inoculation, and having priced in all the good news that they can, indexes finish the week somewhat indecisively – responding to news as and when it appears but not moving with any kind of all-encompassing trend. Awaiting further vaccine updates, European indexes moved tentatively upwards, with the DAX and CAC both climbing 0.39% apiece. Similarly, the FTSE gained 0.27%, finishing at 6,351 points. Though bolstered by encouraging gains posted by BAE Systems and AstraZeneca, the index was weighed by the performance of Sage and Johnson Matthey. Similarly, the UK will remain worried about the efficacy of the oncoming AstraZeneca vaccine. As stated by IG Senior Market Analyst, Joshua Mahony: “From a UK perspective, plenty rides on the outcome of the AstraZeneca vaccine trials given the oversized nature of the pre-order compared with the likes of Pfizer and Moderna.” Alongside largely positive vaccine sentiment, the UK was buoyed by encouraging retail sales, with Mr Mahony adding that: “UK retail sales provided a timely boost ahead of the impending Black Friday sales, with October sales up 5.8% on those seen a year earlier.” Unfortunately, the reality of the situation is rather more bleak. With the strongest activity being posted by non-store retailers – and with the sales weekend falling within the UK lockdown period – the figures might provide some short-term comfort while masking the reality of the situation. By not pricing in what the data is really telling us, global equities may have condemned themselves to a reality check towards the end of the year. However, the situation in the US market is already less peachy. Still hurt by their disappointing retail sales earlier in the week, US businesses will have to take into account the impacts of social distancing (and potentially political tensions) as they open for Black Friday shopping. The worst news over the pond, though, related to continued stimulus toing and froing, as Mr Mahony says:

“Stimulus remains a significant theme for markets, with the continued failings at Congress now accompanied by a move from the US Treasury to withdraw the CARES act despite Fed extension requests.”

“With the Fed seeking a 90-day extension to the four emergency lending programmes currently in place, Steven Mnuchin’s rejection highlights an end to the kind of support needed to stave off a deeper economic collapse.”

The medium-term impacts of these considerations have yet to reveal themselves, but for now they provide an element of uncertainty which won’t be well-received by global equities valuations. Though hopefully not spreading further afield, the weak sentiment this kind of back-and-forth creates was reflected in the Dow Jones on Friday, down by 0.52%, three hours into trading.

Treasury, Bank of England and FCA to facilitate investment in productive finance

Jamie Gordon
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Treasury, Bank of England and FCA to facilitate investment in productive finance
The Treasury, Bank of England and FCA announced on Friday that they’d be convening to try and facilitate increased investment in ‘productive finance’. The organisations said that productive finance is that which expands productive capacity, sustainable growth and economic contributions. The FCA stated that areas requiring investment include: “plant and equipment (which can help businesses achieve scale), research and development (which improves the knowledge economy), technologies (for example, green technology), infrastructure and unlisted equities related to these sectors.” As part of the push for productive finance, the Treasury, Bank of England and FCA say that long-term investment commitments may be required, but that this is exactly what is needed to provide a reliable source and capital, and aid in economic recovery. The ‘working group’ aims to investigate barriers to investment in productive finance assets in the UK, such as the Treasury’s Patient Capital Review in 2016 and the Asset Management Taskforce’s UK Funds Regime Working Group’s Long-Term Asset Fund (LTAF) proposal in 2019. It added that the group’s mandate will be: “to agree the necessary foundations that could be implemented by firms and investment platforms, to facilitate investment in long-term assets by a wide range of investors”. As part of its work, the Treasury, Bank of England and FCA will propose solutions and a roadmap to overcome investment barriers, which will include potential fund structures, such as the LTAF, and an attempt to balance investment in long-term assets with the demands of a wide range of investors. Co-sponsored by the Economic Scretary to the Treasury, the Bank of England Chief, Andrew Bailey, and FCA Chief Executive, Nikhil Rathi, the working group has said its membership will be drawn from banks, asset management funds, insurance companies, corporates, infrastructure firms, wealth managers, investment platforms and trade associations representing relevant sectors and markets. Speaking for the need for assistance to be directed to non-financial sectors, and sustainable growth, Positive Money Director, Fran Boait, called on the government to honour its commitment to ‘levelling up’ within the new task force’s initiatives:

“For too long the UK economy has been held back by the majority of bank lending going towards property and financial markets rather than the productive investment in the real economy desperately needed to level up regions and boost incomes.”

“Now more than ever we need measures to guide lending towards productive investment to support a sustainable recovery and a fair green transition. Policymakers should look to introduce modern forms of so-called ‘credit guidance’, which were effective in steering lending towards more productive ends for much of the twentieth century.”

BAE Systems shares take off thanks to £16.5bn UK Defence budget

Jamie Gordon
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BAE Systems shares take off thanks to £16.5bn UK Defence budget
Aerospace and defence manufacturing firm, BAE Systems (LON:BA), watched its shares continue their upward climb on Friday, following the government’s announcement of a £16.5 billion injection into the Defence budget. While in real terms the boost will actually increase the Defence budget by £7 billion (according to the IFS’s Ben Zaranko), that amount is certainly significant. And, according, to prime minister Boris Johnson, the new money will protect “hundreds of thousands of jobs”, create 40,000 new jobs, and allow UK Defence capabilities to undergo a ‘once-in-a-generation modernisation’. While some have criticised the new funding on the grounds that green finance and COVID support schemes are deserving of more attention, Labour and the Treasury were more focused on the budget implications, with the former supporting the Defence budget boost but asking where the money was coming from. Speaking on the decision to expand Defence spending, PM Boris Johnson pledged to protect the shipping lanes that supply the UK, renew the country’s nuclear deterrent and restore Britain’s status as “the foremost naval power in Europe” with a “renaissance of British shipbuilding across the UK”. He added on the need to need to create a new ‘cyber force’, AI centre and an RAF space command: “From aerospace to autonomous vehicles, these technologies have a vast array of civilian applications opening up new vistas of economic progress, creating 10,000 jobs every year – 40,000 in total – levelling-up across our country and reinforcing our union”.

BAE Systems booming and energetic

Since the start of the month BAE Systems shares have soared over 20%, following solid orders over the last few months, a new deal for the supply of Eurofighter jets to the German government, and now the announcement of extra Defence funding from the UK government. Since the start of the week, the company’s shares have bounced from just over 470p a share, to over 525p apiece – up by 3.44% on Friday 20/11/20. Analysts currently have a consensus ‘Buy’ rating on the stock, alongside a target price in excess of 620p – more than 20% ahead of its current price. Its p/e ratio offers good value at 13.05, versus the industrial sector average of 35.04, though the Marketbeat community has a marginal 50.19% “underperform” rating on the stock. The question is though: will it keep soaring or has the upside been priced in? Well, with the UK representing aroudn 20% of Bae Systems orders and an extra £4 billion per year in Defence spending over the next four years, there is scope for new orders to give the company’s price a push. Similarly, as stated by Yahoo Finance and Motley Fool’s Edward Sheldon, Joe Biden is also looking to modernise the US’s defence capabilities. In a speech in September, the president-elect said: He wants to shift investment from “legacy systems that won’t be relevant” to “smart investments in technologies and innovations — including in cyber, space, unmanned systems and artificial intelligence.” “We have to focus more on unmanned capacity, cyber and IT, in a very modern world that is changing rapidly,” With the US making up 43% of BAE Systems orders, such a move, if substantiated, could be significant for its long-term for its long-term outlook. Similarly, its current price isn’t far ahead of where it has spent the majority of the year-to-date, and its 2021 earnings projection of 48.9p a share would – at this price – generate an attractive p/e ratio of around 10.5. For those who aren’t squeamish about the realities of the company’s Saudi Arabian contracts, its 5% dividend yield and ‘significantly undervalued’ note from Morgan Stanley, could make BAE Systems a value-for-money opportunity.  

Art Investment Q&A With Julian Usher of Red Eight

UK Investor Magazine
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Art Investment Q&A With Julian Usher of Red Eight

Unlike any other investment, when you invest in art you get the benefits of a beautiful piece to hang on your wall as well as the promise of plentiful profits when you do finally sell. We spoke to Julian Usher, Head of Sales of London’s Red Eight Gallery, to discover how he fell in love with the art world and how he’s helping investors enter this thriving market.

Julian, you’ve worked in the art world for a number of years. What drew you to the sector?

I started out in the City as an FX Broker and went on to trade oil in one of the last open outcry pits before computer automation in the late 90s. I then retrained in Executive Search and worked for some of the largest financial institutions before founding Gibson Rose Search & Selection which I ran successfully for 14 years.

Moving into the art world was a breath of fresh air as it’s all about building and developing personal connections. I have always had a love of art, and it was almost serendipitous when an opportunity became available with one of Mayfair’s largest galleries just when I was ready for my next move.

After a few years I was invited to work with Red Eight Gallery which at the time was an ambitious young startup disrupting the art world. As well as being able to fulfill our investors financial goals, working at Red Eight Gallery also allows me to help collectors find artwork they absolutely love. That’s hands down the best part of my job.

What excites you about the art market as an investor?

To put it bluntly, if this were any other industry it wouldn’t be sustainable. Every single artist has a market within the art world. If we look at Banksy for argument’s sake, if his artwork was any other commodity it wouldn’t be sustainable to keep rising in price so dramatically every single time there’s a new auction. If this was any other type of commodity, there would have been a crash by now.

Why do you think it should be on investors’ radars in 2021?

Firstly, with the prospect of ongoing volatility due to the COVID-19 pandemic, art investment is a fantastic method of capital protection. It is an asset class that is not correlated to everything else that is going on in the world. The art market is not correlated to the rise and fall of stocks and shares, it’s not correlated to what the banks are showing, and it’s not correlated to the current pandemic. The reason for this is that art is so subjective. There is always someone who is going to buy your artwork for more than the price you paid for it.

Additionally, investors who enter the art market can enjoy market-beating returns. In 2020 at Red Eight Gallery we showed our investors average returns of 24%, beating

the returns on gold, classic cars, wine, watches, and so on. Having said that, we also have many collectors who come to us looking to acquire beautiful art works to display in their homes or offices which is another unique benefit that you don’t get with any other asset types.

Does art investment tend to be a longer-term strategy? How quickly can investors profitably exit the market?

At Red Eight Gallery we have structured the company to be able to exit investors sooner than most. We have several different exit routes, but typically the longer you hold onto your artwork the higher return you can expect. We always advise our clients on when is the best moment to enter and exit the market by constantly monitoring the landscape of the art world. We also make sure that our clients are investing in the right profile of artist, whether that be emerging artists, well-established or blue chip artists, in alignment with their investment goals.

What makes Red Eight Gallery different from other art investment companies out there?

As a young company coming into an established market, we were aware from the beginning that we needed to do things differently. One service that I know no other gallery in the world offers is our corporate leasing sector. This means we’re the only gallery that can treat our artworks like a buy-to-let property. Investors can enjoy the benefits of a capital growth product, their artwork, showing a regular income.

For example, this asset could generate a 5% guaranteed net return per annum by leasing the artwork out to one of our corporate clients such as serviced office spaces, high-end restaurants and top hotels. As well as generating this annual returns, artwork that is leased also continues to grow in value year on year until you decide to liquidate your portfolio. Thanks to this unique corporate leasing model, Red Eight is able to provide investors with two streams of returns, one of which can be accessed while still retaining full ownership of the asset.

As well as multiple income and exit strategies, another key element to look for when deciding on which gallery to invest with is their ability to source artwork at below market value wherever possible. Here at Red Eight we have the insider connections and expertise to ensure our investors get the very best prices every time.

How is the art market performing right now given the twin headwinds of Brexit and the Covid-19 pandemic?

Paradoxically, the Covid-19 pandemic has been beneficial for the art market since it’s encouraged new investors to look elsewhere. In terms of the artwork that is available, there has also been a flourishing over the lockdown period when a lot of artists were doing nothing but sitting at home and creating.

This has been especially exciting for emerging artists with many having the time to take their careers a bit more seriously. The emerging talent that is coming through at the moment is seriously impressive. Overall, it’s a vibrant and buoyant market right now and it is a great time to start investing in art. In terms of Brexit I don’t see it significantly affecting the art market since there is no correlation to other markets and the value of art work tends to be heavily subjective. In terms of everything that is going on in the world right now, everyone that owns a piece of artwork can rest assured that their money is safe.

For more information on investing in art, please visit www.redeightgallery.com.

Telit Communications shares surge on u-blox merger proposal

Jamie Gordon
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Telit Communications shares surge on u-blox merger proposal
Media speculation has been corroborated by Telit Communications (AIM:TCM) regarding chatter about a preliminary merger proposal it received from Swiss semi-conductor manufacturer, u-blox (SWX:UBXN). Under the terms of the proposal, Telit Communications shareholders would receive u-blox shares with a value of £2.50 per Telit share. This, based on the proposal‘s assumptions, would result in shareholders owning around 53% in the combined company.

Telit said that its Board were considering the merger proposal, alongside its financial adviser, Rothschild & Co, and further announcement would be made as further developments emerge.

The company added that the proposal assumes any such merger would be structured as an offer for Telit by u-blox, but added that there can be ‘no certainty’ that the proposal or any similar will be granted. Its statement added:

“In accordance with Rule 2.6(a) of the Code, u-blox is required, by not later than 5.00 p.m. on 18 December 2020, to either announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer for the Company, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies.”

“This deadline can be extended with the consent of the Panel on Takeovers and Mergers in accordance with Rule 2.6(c) of the Code.”

Following the announcement, Telit Communications shares jumped 17.95%, up to 198.40p on Friday 20/11/20. This price is its highest since 2017, where it peaked at around 371.00p a share, but ahead of its six-month high of 106.00p. Conversely, u-blox shares dropped by 8.17%, to 53.65 CHF, though still ahead of its year-to-date nadir seen around Halloween, at 45.12 CHF.

Fusion Antibodies shares down on H1 trading update

Safiya Bashir
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Fusion Antibodies shares down on H1 trading update
Fusion Antibodies shares (LON: FAB) plunged 16% on Friday morning’s opening after releasing a trading update for the six months ended 30 September 2020. In the period, revenue increased by 9% from £1.75m to £1.90m. The specialists in pre-clinical antibody discovery said that trading for the period had been in line with the expectations. Losses for the period remained the same as the year previously at £0.47m. The board is not recommending the payment of a dividend in relation to the first half of the current financial year. Commenting on the interim results, Paul Kerr, chief executive of Fusion Antibodies, said: “I’m pleased to report that our revenues have grown despite the fact that the period has been dominated by the COVID-19 pandemic. We have expanded our R&D programme to include a COVID-19 target along with our oncology targets, with the goal of using our Mammalian Antibody Library, which will be branded as “OptiMAL(TM)”, to produce neutralising antibodies against the virus, and have raised capital for that purpose. “We have remained operational throughout changing levels of government restrictions and have taken the steps to sustain the business in the coming months. I would like to thank our shareholders and staff for all their valued support to enable us to continue to grow in these challenging times.” Fusion Antibodies shares (LON: FAB) are trading -8.80% at 114,00 (0958GMT).

Nationwide reports rise in profits on mortgage demand

Safiya Bashir
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Nationwide reports rise in profits on mortgage demand
Nationwide reported a 17% rise in pretax profit to £361m. The lender had a resilient performance for the first half of the financial year, which was boosted by strong demand for buy-to-let mortgages. Chief financial officer, Chris Rhodes, commented: “It is pleasing to see the benefits of our conservative approach feed through into the results for the half-year.” “Our margin has stabilised, costs have reduced and profit is stable compared to the same period last year, despite a rise in impairment charges associated with the pandemic and the current uncertain economic outlook.” The housing market came to a standstill over lockdown, however, has since recovered and mortgage approvals in September were 39% higher than the year previously. Chief executive Joe Garner said: “It is very hard to predict what will happen to the economy, jobs and the housing market in the near future as a result of the pandemic and Brexit. “While there are many uncertainties ahead, Nationwide faces into them from a position of considerable strength. We have steady profits, stable income, a strong balance sheet, and a strong capital position.” Looking forward, Nationwide has warned of the many uncertainties ahead. Earlier this month, the group warned of the likely slowdown in the housing market. Robert Gardner, Nationwide’s chief economist, said: “activity is likely to slow in the coming quarters, perhaps sharply, if the labour market weakens as most analysts expect, especially once the stamp duty holiday expires in March.”

UK retail sales beat analysts’ expectations

Safiya Bashir
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UK retail sales beat analysts’ expectations
UK retail sales have grown for a sixth consecutive month in October. October saw retail sales grow by 1.2%, which was ahead of the 0% expected, according to the Office for National Statistics. Since February, retail sales have increased by 6.7%. Online sales have jumped by 52.8%, whilst in-store sales were down by 3.3%. “Despite the introduction of some local lockdowns in October, retail sales continued its recent run of strong growth,” Jonathan Athow, the deputy national statistician for economic statistics. “Feedback from shops suggested some consumers may have brought forward their Christmas shopping, ahead of potential further restrictions. Online stores also saw strong sales, boosted by widespread offers. “However, the slow recovery in clothing sales has stalled after five consecutive months of increased sales.” The only sectors that are below pre-pandemic levels are clothing stores and fuel. Analysts have warned that this could be the last growth in sales ahead of the new restrictions. Lisa Hooker, consumer markets leader at PwC, said: “There was a recovery in almost every category of the sector, and measuring the period to 31 October, these figures don’t include the last minute rush to the high street after the second lockdown was announced. “In fact, the only category to show a material decline in sales was fashion, with less demand for occasionwear and workwear continuing to hit an already beleaguered part of the market. “The closure of non-essential stores and slump in consumer sentiment earlier this month will severely hamper the sector with little over a month to go to Christmas and Black Friday just a week away. “Looking ahead to December, with online delivery capacity already stretched to its limits, retailers will be hoping for a swift lifting of lockdown restrictions and that consumers continue to show they can bounce back into spending mode, as they did after the first lockdown was lifted in June.”

UK debt hits record highs

Safiya Bashir
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UK debt hits record highs
The UK’s national debt has hit the highest rate since the 1960s. Recent figures from the Office for National Statistics show that Britain borrowed £22.3bn in October, which is £10.8bn more than a year ago. The ONS said: “The extra funding required to support government coronavirus support schemes combined with reduced cash receipts and a fall in gross domestic product (GDP) have all helped push public sector net debt as a ratio of GDP to levels last seen in the early 1960s.” The cost of the pandemic continues to rise and borrowing between April and October is the highest level in that period since records began in 1993. “We’ve provided over £200bn of support to protect the economy, lives and livelihoods from the significant and far reaching impacts of coronavirus,” said Rishi Sunak, commenting on today’s figures. “This is the responsible thing to do. But it’s also clear that over time it’s right we ensure the public finances are put on a sustainable path,” he added. The level of borrowing fell from the month prior, where the UK government borrowed £28.6bn. Overall, Britains debt has grown to £2.06 trillion in October. This year it has grown by a record level. The public sector net debt is around £2,076.8bn, which around 100.8% of gross domestic product (GDP).  

Sage posts 20% subscription growth

Safiya Bashir
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Sage posts 20% subscription growth
Sage has reported an 8.5% rise in revenue to £1.6bn. The software company also saw subscription growth rise by 20.5% to £1.1bn. Operating profit was down 3.7% from £406m to £391m in the year ended 30 September 2020. The growth in revenue was mainly thanks to the growing demand and number of new customers in Northern Europe and North America. Steve Hare, the chief executive, said: “We’ve delivered a strong performance in FY20, achieving recurring revenue growth in line with the guidance we gave at the beginning of the year, despite the COVID-19 pandemic. “I would like to thank all of our colleagues and partners for their continuing commitment to our customers, communities and each other during this period. We’ve also made good strategic progress, delivering against our customer, colleague and innovation commitments. “While the near term remains uncertain, these foundations position us well to support customers as they adopt digital business models, and I am confident that our additional investment in Sage Business Cloud, and in particular cloud native solutions, will deliver stronger growth and drive the future success of the Group,” he added. Looking forward, Sage is expecting recurring revenue growth for the next financial year to be in the region of 3% to 5%, weighted towards the second half of the year. The group plans to invest more in its cloud business.
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