Prudential shares bask in optimistic Asia profits
Shares at Prudential plc (LON:PRU) have bounced 2.76% after the company released a “resilient” set of half year 2020 results, celebrating a 14% adjusted operating profit across its services in Asia.
The British multinational life insurance and financial services firm – based in London and boasting more than 20 million customers – announced that it intends to build on its encouraging Asian profits by focusing on “high growth Asia and Africa markets with a view to sustained double-digit growth in embedded value per share”.
Nevertheless, Prudential was not entirely able to escape the impact of the coronavirus pandemic, with underlying operating profit in the first half down 2% year-on-year to $2.5 billion. Net cash across its business units was also down a whopping 60%, falling from $1.09 billion to $432 million.
The company assured, however, that its regulatory capital surplus remains strong at $12.4 billion, and that it will be announcing a new dividend policy aimed at focusing on “value creation through growth”.
Amidst its H1 results, Prudential also announced that it intends to “fully separate” from its US life insurance provider Jackson, beginning in early 2021.
Mike Wells, Prudential’s chief executive, commented on the firm’s announcement:
“We have delivered a resilient performance in the first half, despite a challenging new business sales environment, which is likely to persist for the rest of the year, and further falls in interest rates.
“The Board of Prudential plc has decided to pursue the full separation and divestment of Jackson to enable the Group to focus exclusively on its high-growth Asia and Africa businesses.
He added that the company is well-placed to withstand the long-term economic impact of the coronavirus pandemic:
“We believe we are well positioned both to weather the disruption caused by the Covid-19 pandemic as we continue to support our customers and communities in the recovery to come, and emerge stronger and with a more focused strategy”.
Neil Shah, Director of Research at Edison Group, weighed in on Prudential’s optimistic report:
“Although Prudential has had to struggle with several unexpected set of events in Asia, from the start to the pandemic to Hong Kong riots and US/China or a hit to fees from falling markets, Pru has found a bright spot in the Far East with a 14% increase in profit”.
It is good news for investors, nonetheless, as Shah maintains “proceeds from the [Jackson] move will force the company to take a new dividend policy and will kick off with a first interim dividend for 2020 of 5.37 cents a share”.
Prudential’s share price rallied 2.76% to 1,226.00p at BST 12:41 11/08/20 in response to the company’s announcements.
Domino’s Pizza posts “resilient” H1 results despite collection-only lockdown
Family favourite fast-food pizza chain Domino’s (NYSE:DPZ) has released its interim results for the six months leading up to June 2020. Despite citing “resilient performance during unprecedented trading conditions”, the company’s underlying profits took a major 4.6% hit during the coronavirus pandemic.
UK and Ireland system sales reportedly increased 5.5% year-on-year to £628.9 million, with like-for-like sales excluding splits up 4.8%, while Ireland like-for-like sales excluding splits slipped 3.6%.
Domino’s underlying profit before tax took a blow, however, sliding to £47.6 million from £49.9 million in the same period last year.
Statutory profit before tax from continuing operations nonetheless grew 13.6% to £45.8 million, up from the £40.3 million recorded in the sixth months leading up to June 2019.
The chain has commendably managed to tackle its net debt, down 15.4% to £202.1 million.
Domino’s decision to terminate collections throughout the Covid-19 lockdown period – offering contact-free delivery only between March and July to help keep customers and staff “safe and happy” – saw Q2 collection orders down 87%, while Q2 delivery orders increased by 22%.
The company’s announcement also confirmed that its deferred FY19 dividend of 5.56p per share – amounting to £26m in total – is now set to be paid on 18 September 2020.
Commenting on the results, Dominic Paul, Domino’s chief executive officer, celebrated the company’s performance while warning that the outlook for its next half-year report is still decidedly uncertain:
“Throughout these unprecedented times we have focused on doing the right thing for our customers, colleagues, franchisees and communities. We view it as a privilege to have been able to stay open throughout the period.
“We have an amazing brand, an exceptional supply chain, highly experienced franchisee partners and a dynamic and responsive model. The relationship with our franchisees is challenging and this situation dates back several years. Although I expect this to take some time to resolve, our performance during the period is a great demonstration of what we can achieve when we work together.
“The macroeconomic, consumer and competitive backdrop for the second half of the year contain considerable uncertainties. Our system demonstrated responsiveness and agility in meeting the challenges presented through the lockdown period, although that did come at some inevitable and, in certain areas considerable, incremental costs”.
Shares at Domino’s were down 0.82% to USD 385.93 at the close on Monday.SDL share price surges on strong results
Shares in SDL (LON: SDL), the intelligent language and content company, have surged +15% on Tuesday after the group announced positive half-year results.
The company traded strongly amid the pandemic as employees continued to work at home and SDL saw a 46% growth in Machine Translation revenue – offsetting weaker sales in Marketing Solutions, travel, leisure, and manufacturing.
The company remains positive for the second half of the year, which traditionally shows stronger results.
Gross profit increased by £0.4m to £94.4m thanks to an investment in the Language Services automation process.
Adolfo Hernandez, the group’s chief executive, said: “In challenging circumstances, we are pleased with the Group’s performance in the first half of the year. Crucially, we were able to enact our business continuity plans swiftly, moving the entire global workforce to working-from-home over a matter of weeks. As a result, there was no material disruption in our ability to service customers nor to our productivity.”
“SDL remains operationally resilient and well-capitalised, and its core strategic plans remain on track. Looking to the second half, which is traditionally our stronger period, although our pipeline is good, COVID-19 continues to present a risk to trading patterns and software sales cycles. However, we believe that the Group is positioned to take advantage of the expected recovery in the global economy post COVID-19,” he added.
Shares in SDL (LON:SDL) are trading +15.63% at 540.00 (1143GMT).
ONS: UK unemployment reaches record highs
UK unemployment has risen by the biggest amount in over ten years.
Despite the furlough scheme still in place in the UK, in the last three months, the Office for National Statistics revealed a 220,000 fall of workers compared to the previous quarter.
The decline is the largest since the financial crisis in 2009.
“The groups of people most affected are younger workers, 24 and under, or older workers and those in more routine or less skilled jobs.This is concerning, as it’s harder for these groups to find a new job or get into a job as easily as other workers,” said Jonathan Athow, deputy national statistician at the ONS.
Although the numbers may have peaked over the past three months, fears are increasing as October approaches and the government furlough scheme will come to an end.
“Unfortunately, the end of the furlough scheme will present a cliff-edge, statistically and economically, for those currently relying on government support to make up their wages,” said Jeremy Thomson-Cook, chief economist at Equals Money.
“Longer-term government stimulus to create jobs is needed to ensure the gap between the end of the furlough scheme and a rise in employment is not larger than it needs to be,” he added.
The Bank of England predicted last week that the unemployment rate would rise to 7.9% at the end of the year.
The number of large companies announcing wide-scale redundancy plans this year has hit highs since the effects of the Coronavirus pandemic. In the month of June, 140,000 UK were lost.
Apple shares climb as services sector grows 161% in 5 years
A new report from Buy Shares has revealed that Apple Inc. (NASDAQ:AAPL) enjoyed a 161.63% growth in its services sector between Q3 2015 and Q3 2020, seeing it surge to become the fastest-growing branch of the $1 trillion tech giant.
Apple’s services segments comprises of a number of products, including: the App Store, Apple Music, Apple TV Plus, Apple Arcade, Apple News Plus, Apple Pay, and iCloud.
In Q3 2015, Apple’s services segment raked in revenue of $5.03 billion, a figure nearly dwarfed in comparison to its Q3 services revenue this year, which currently stands at $13.16 billion.
Despite the almost universal sucker punch dealt by the coronavirus pandemic in the first half of 2020, Apple actually saw a 4.95% growth in its services sector, up from $12.72 billion in the first 3 months of the year to $13.35 billion in Q2.
Back in February, the company warned that its year-end profits may take a significant hit from the impact of the coronavirus on its manufacturing sector – largely based in China – and said it expected to miss its $63-67 billion revenue target.
Overall, Buy Shares reported that Apple’s revenue per segment grew as follows between Q3 2015 and Q3 2020:
- iPhone revenue dropped by 15.77%, falling from $31.37 billion in Q3 2015 to $26.42 billion in Q3 2020
- Mac revenue shot up by 17.41%, up to $7.08 billion in Q3 2020 from $6.03 billion in Q3 2015
- iPad revenue soared by 44.93% to $6.58 billion in Q3 2020, up from $4.54 billion in Q3 2015
- Wearables, home, and accessories revenue grew 144.31% to $6.45 billion in Q3 2020 compared to $2.64 billion in Q3 2015
ESG Funds: 3 Funds with strong environmental, social and governance characteristics
ESG Funds have grown in popularity over the past 18 months as the asset management industry wakes up to investor demand for investment vehicles that provide some good, as well as a financial return.
There is a wide range of fund structures and investment mandates that could fall under the ‘ESG Fund’ banner. This is illustrated below in three funds that vary in their approach from ones that set out make a measurable positive impact to those that simply try to avoid allocations to unethical companies.
The Baillie Gifford Positive Change Fund is clear in it’s mandate to seek out companies that directly contribute the United Nation Sustainable Development Goals (SDGs).
The managers of the fund undertaking a significant level of SDG mapping to ensure the companies in the portfolio are actually driving a positive change.
Baillie Gifford also say they want to avoid companies ‘merely aligning with a theme at a superficial level’ or want to appear to be helping the SDGs through business practises as opposed to underlying business activities or objectives.
As a note, the first fund mentioned in this article in ‘iShares MSCI World ESG Enhanced UCITS ETF’ may be labelled by some as falling into the category of superficial ESG, or even greenwashing.
As of the end of June, the top holding was in the Baillie Gifford Positive Change Fund Tesla with 9.5% of the fund. Dexcom, the producer diabetes management systems accounted for 6.6%.
iShares MSCI World ESG Enhanced UCITS ETF
The first fund demonstrates portfolio construction that selects companies with strong environmental, social and governance characteristics that on the face of it, may look like a straightforward equity fund. This ETF’S top holdings are dominated by US technology shares such as Apple, Microsoft and Facebook, and looks very similar to any other ETF tracking the world’s largest companies. However, the ETF excludes companies in sectors such firearms, tobacco and thermal coal. This approach means investors avoid investing in unethical companies through the screening out of certain sectors. However, this may not go far enough for investors that are seeking to invest in companies with goods and services that are tackling pressing matters such as global warming and extreme poverty head on.The Tech For Good SEIS & EIS Fund
Whilst the prior fund simply excludes those deemed to be unethical, The Tech For Good SEIS & EIS Fund, run by Bethnal Green Ventures, actively seeks out investments in companies that are providing positive social and environmental impact. The focus is on technology companies that can provide a positive impact at scale. The fund has so far backed 127 ‘tech for good’ ventures with initial funding rounds of Examples of portfolio companies include aeroponic food venture, LettUs Grow, and EdTech firm Chatterbox that trains refugees to tach languages online. The fund is structured as a EIS fund only open to high net worth and sophisticated investors and will not be available to retail clients. This reflects the high risk nature of the Tech for Good Fund compared with the other funds included in this article but has the aim of returning £2.00 for every £1.00 invested, net of fees. The guidance term for the fund is seven to ten years.
Baillie Gifford Positive Change Fund
The Baillie Gifford Positive Change Fund is clear in it’s mandate to seek out companies that directly contribute the United Nation Sustainable Development Goals (SDGs).
The managers of the fund undertaking a significant level of SDG mapping to ensure the companies in the portfolio are actually driving a positive change.
Baillie Gifford also say they want to avoid companies ‘merely aligning with a theme at a superficial level’ or want to appear to be helping the SDGs through business practises as opposed to underlying business activities or objectives.
As a note, the first fund mentioned in this article in ‘iShares MSCI World ESG Enhanced UCITS ETF’ may be labelled by some as falling into the category of superficial ESG, or even greenwashing.
As of the end of June, the top holding was in the Baillie Gifford Positive Change Fund Tesla with 9.5% of the fund. Dexcom, the producer diabetes management systems accounted for 6.6%. 
Saudi Aramco is latest oil giant to be hit – profits plunge 73pc
The Saudi state oil group, Aramco, shared its Q2 results on Monday – revealing a 73% dive in net profits.
According to the group, the global pandemic has been a challenging period hitting all in the energy sector. Despite the difficult conditions, Saudi Aramco has proved resilience.
Net profits from $24.7bn in the same period in 2019 down to $6.57bn.
Just last year, the group floated on the Saudi stock exchange and was seen to be the world’s most valuable company after posting strong profits. Since the dent to demand since the Coronavirus, Saudi Aramco has been taken over by Apple.
The group’s chief executive, Amin Nasser, said in a statement: “Despite COVID-19 bringing the world to a standstill, Aramco kept going. We have proven our resilience and reliability, setting a record in our business operations, while at the same time ensuring the health and safety of our people.”
“Strong headwinds from reduced demand and lower oil prices are reflected in our second-quarter results. Yet we delivered solid earnings because of our low production costs, unique scale, agile workforce, and unrivalled financial and operational strength. This helped us deliver on our plan to maintain a second-quarter dividend of $18.75 billion to be paid in the third quarter.”
“We are determined to emerge from the pandemic stronger and will continue making progress on our long-term strategic journey, through ongoing investments in our business – which has one of the lowest upstream carbon footprints in the world,” he added.
The price of oil has tumbled down to $16 a barrel in April 2020, down from previous highs of over $45 a barrel.
Shares in Saudi Aramco (TADAWUL: 2222) are trading +0.15% at 33.10 (0851GMT).
Bank of England sits tight on 0.1% interest rate
The Bank of England‘s Monetary Policy Committee (MPC) voted on Thursday to maintain its all time low interest rate at 0.1% and leave its target for bond-buying unchanged at £745 billion.
Although it looks as if the central bank will hold off on any further stimulus packages or the like to help bolster the UK economy through the coronavirus pandemic, a ‘material’ rise in unemployment looms on the horizon as the government prepares to wind up its furlough scheme in October, and the Bank has warned that the future of the UK economy remains ‘unusually uncertain’ as the UK’s oldest financial institution continues to tackle widespread market pessimism due to virus fears.
The MPC said the economic outlook for the UK and the direction of the Bank’s monetary policy in the coming months rests ‘critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors’.
Last month, the Bank of England announced it would consider asking UK banks to freeze their dividend payments during 2021, following in the footsteps of the European Central Bank‘s decision to ‘scrap dividends’ and ask directors to be ‘extremely moderate’ with staff bonuses until the beginning of next year.
Nevertheless, the Bank of England so far has no plans to ‘tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably’.
The MPC’s projections for the rest of 2020 have emerged somewhat more optimistic than the Bank’s dire May forecast, which saw predictions of a 14% contraction of the UK economy, hit hard by the impact of lockdown and social distancing measures. The Bank has since revised this estimate down to 9.5%, on the basis that the recent rebound in consumer spending could help drive the economy’s recovery back to pre-pandemic levels.
Bank of England governor Andrew Bailey commented on the MPC’s Thursday vote, stating: “We have had a strong recovery in the last few months. The pace puts the economy ahead of where we thought it would be in May”.
All this optimism appears terminal, however, according to the Bank’s prediction that a surge in unemployment levels in the fourth quarter and fears surrounding a second wave of coronavirus infections during the winter months could see the hard-won economic progress backtrack significantly.
Bailey added cautiously that the recent positive data should not cloud our hopes of a consistent economic recovery, adding: “We don’t think the recent past is necessarily a good guide to the immediate future”.
Back in June, Chancellor Rishi Sunak warned that the UK is set to face ‘tragic’ levels of unemployment towards the end of 2020, as cash-strapped businesses are forced to lay off staff once the government’s wage relief comes to an end. Meanwhile, global equities have almost unanimously wavered over the last few months, struggling to respond to conflicting attitudes toward the pandemic as well as mounting political tensions between the West and China over Hong Kong and Huawei‘s controversial 5G scheme.
All that being said, with the UK’s economy currently on a precarious and not-yet-guaranteed upward trajectory, governor Bailey assured that the Bank of England is ‘ready to act’ if the outlook suddenly takes a turn for the worst.
The Bank nonetheless expects the largest annual annual economic decline in over 100 years, and the UK is still on track for the sharpest recession on record. Recovery is poised to be a slow process as well, with the economy predicted to grow by 9% in 2021 and 3.5% in 2022, but a full recovery to pre-Covid levels is not expected until the end of 2021 at the earliest.
Unemployment rates are expected to soar from the current 3.9% to 7.5% by the end of the year.
The response to the Bank’s news has been mixed. Luke Davis, CEO at IW Capital and private equity expert, welcomed the Thursday update:
“These figures will be encouraging to many who would have feared much worse. Resilience is an important part of any business and firms that have survived this period will now be looking forward to growth and opportunity. We have already seen billions spent by the Government and now may be the time to take a proactive – rather than reactive – step to boost the economy back to where we were in February, and beyond”.
Others have criticised the Bank’s somewhat lacklustre update, with one Twitter user weighing in:Douglas Grant, director of Conister Finance & Leasing Limited, said: “Today’s announcement further highlights the long term nature of our country’s economic recovery. In the short to medium term, we are facing a significant double dip recession that could last well into late 2021 and the economy will be hurt by both SMEs closing and mass redundancies for a significant part of the workforce”. So overall a mixed bag from the MPC’s update. No further stimulus seems to be on the cards, which will undoubtedly leave long-suffering high street retailers dreading the next few months with imminent widespread unemployment and the ever-growing risk of another lockdown sitting ominously on the horizon. The recent resurgence in consumer spending is – of course – subject to any changes in the government’s pandemic response, and with a concerning rise in virus cases in the North of England and Scotland leading to localised lockdowns in Leicester and Aberdeen, and a warning from the England’s chief medical officer Chris Whitty that we are fast approaching the ‘limit’ of easing restrictions, the Bank of England may well have to demonstrate just how ‘ready’ it is to act, as the path to economic recovery looks as bumpy as ever.The Bank of England suggests our economic outlook may be better than we feared a few months ago … assuming no virus surprises, no shocks to consumer confidence, no geopolitical turbulence, and no Brexit bumps at the end of the year. Too soon to party? https://t.co/BagCgkrhNw
— Alistair McQueen (@HelloMcQueen) August 6, 2020