Nasdaq at all-time high as tech bubble overrides underwhelming PMI data

Jamie Gordon
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2
Nasdaq at all-time high as tech bubble overrides underwhelming PMI data
The Dow Jones saw a bright start to trading on Tuesday, up 1.08% or 281 points to 26,308. This figure wasn’t quite as impressive as the one analysts were predicting at lunchtime, and this was likely led by underwhelming US PMI data. Instead, The Nasdaq Composite stole the spotlight, with the index hitting its all-time high by rallying 1.56% to 10,213 points. After housing market data stagnated US markets on Monday, promises of a big point bounce on Tuesday were dashed by US manufacturing falling short of the 50.0 PMI forecast. The US data for the June reading came out at 49.6, which, crucially, means that manufacturing failed to return to growth. While this represents a marked improvement on the 39.8 reading in May – alongside a services PMI improvement from 37.5 to 46.7 – it bucks the trend set by the Eurozone and UK, who posted vastly outperforming flash PMIs.

Additionally, the underwhelming US data sapped some of the energy out of the European gains. After the DAX hit 12,600 points a few times during the day, the FTSE stopped at 6,340 and the CAC hit 5,045 points around lunchtime. Despite falling, the DAX was still up 2.13%, the FTSE rallied 1.21% and the CAC bounced 1.39%, to 15,524, 6,320 and 5,017 points respectively.

The headline, though, went to The Nasdaq Composite, which had the greatest advantage over both the Dow and the S&P 500 since 1983. Among the parties credited for Tuesday’s gains were Apple (NASDAQ:AAPL), which bounced 3.07% as the company posted strong financials. Also noted were Amazon (NASDAQ:AMZN), up 2.19%, and Facebook (NASDAQ:FB), which rallied by 1.91%.

Today’s Nasdaq rally, however, may be as short as it is sweet. According to Credit Suisse analysts, Tuesday’s bullishness was led by what it describes as a ‘tech bubble’. The majority of Nasdaq stocks are currently above their forecast average price, and Credit Suisse anticipates a correction in the near future. “A close above 10155/230 and then 10400 would suggest there is a real possibility the Tech sector is entering ‘bubble’ territory and further parabolic strength may emerge, with resistance seem at 10610/710 next.” read the Credit Suisse statement. “96% of Nasdaq 100 stocks are above their medium-term average and whilst this points to strong market breadth, it also speaks further to the current highly overextended state of the rally. Furthermore, 74% of Nasdaq 100 stocks are above their long-term 200-day average.”  

News round-up – markets rally as lockdown eases

Bronte Carvalho
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0
News round-up – markets rally as lockdown eases
The FTSE 100 (INDEXFTSE: UKX) surged by 81 (1.3%) points to reach 6,326 at its peak on Tuesday after PM Boris Johnson announced further lockdown easing measures and reports indicate that the UK’s economic activity is beginning to pick up. Markets were buoyed by good news on Tuesday, but the long-term implications of the coronavirus pandemic continue to take their toll across the board. The end of lockdown is nigh in England, with the PM’s announcement that pubs, restaurants, hotels and hairdressers can all reopen come 4th of July – alongside a relaxation in the government’s current 2 metre social distancing guideline. People should continue to try and stay at least 6 feet apart where possible, but a “one metre plus” rule is set to be introduced in order to help close contact hospitality companies resume business as normal. The news comes as a welcome relief to an industry hit especially hard by lockdown, even as a number of restaurant chains – including family favourite Wagamama – call for further government support and prepare for mass redundancies once the UK’s furlough scheme comes to an end in October. The manufacturing industry has seen a sharp rise in activity during June, according to data released by IHS Markit on Tuesday. Preliminary reports indicate that factories have returned to a growth trajectory having risen from 40.7 in May to 50.1 this month – crucially only just above the 50 point margin which represents stagnation. Manufacturing has no doubt benefitted from the easing of lockdown restrictions across the UK, although concerning reports of outbreaks of coronavirus at a meat processing factory in Wales threaten to undermine the good news. A total of 175 employees at the factory in Llangefni have tested positive for the virus and the site has been forced to close as local authorities attempt to stop the infection from spreading. Despite the surge in economic activity, the car industry continues to struggle amid warnings that 1 in 6 jobs could be at risk. The Society of Motor Manufacturers and Traders have said that the industry is in “critical need” of government support, with a third of employees still on furlough and a record 99.7% free-fall in car volumes to the lowest level since World War II. The transport and motor industry have been among the hardest hit sectors of the UK economy and grim predictions of a no-deal Brexit on the horizon rub salt into the wounds of any hopes of a sustained recovery. A combination of reduced demand, social distancing and scuppered trade deals across Europe leave the industry in a difficult position with little solace that the hard times are over just yet. Coronavirus is also set to change the office landscape permanently, according to reports by Reuters. The financial districts in Bank and Canary Wharf told record numbers of employees to work from home during the peak of the pandemic, but even as lockdown measures are eased, a significant proportion of those that have been working out of office are set to be encouraged to do so for the foreseeable future. Banks are planning to cut office space and “reset” their operations after large numbers of employees proved that working from home was effective and sustainable in the long-term. The strategic move is also likely to help cut costs, as renting space in London is notoriously expensive and working remotely is expected to remain attractive to businesses while social distancing measures remain in place. Tomorrow is Quarter Day for the UK retail sector, as businesses are expected to pay rent for the next 3 months to their landlords. The expectation is that less than half of due amounts will be collected as high street businesses were forced to shut between March and June. A number of commercial landlords are facing bankruptcy – including INTU Properties, which owns Lakeside shopping centre – after a collapse in rental payments from tenants as stores labelled “non-essential” by the UK government. INTU (LON: INTU) has since appointed accountancy firm KPMG to help develop a “contingency plan” for the months ahead. The company’s share price has slid 4.56% or GBX -0.21 BST 16:35 23/06/20 on the eve of the long-awaited collection date. Rounding up the news of the day, the Euro jumped to its highest level in the last 4 months following Markit’s upbeat economic report, as the manufacturing PMI in the eurozone jumped to 46.9 this month from the previous 39.4 in May. The USA’s PMI rose to 46.8 from 37.0 in May, showing signs that the economy across the pond is also starting to recover, although it still remains considerably below the 50 point stagnation mark. Meanwhile, the British sterling remained largely unchanged against the US dollar by today’s updates. So, a mixed bag for global markets overall on Tuesday, but hopes that economic recovery is imminent continue to be stoked by glimpses of good news across the majority of sectors.

Ryanair £8.99 flights see them lead airline share price rally

Jamie Gordon
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0
Ryanair £8.99 flights see them lead airline share price rally
Airlines saw one of their better days of trading since the start of the pandemic, with plans being unveiled for the reopening of airports and cut-price offers on popular holiday routes. Ryanair (LON:RYA) led the charge, with their super-budget July offers, announced just before Tuesday lunchtime. The company’s flash summer holiday sale illustrates quite how desperate airlines are to drum up demand, with one-way flights going for; £9.99 to Lanzarote, £14.99 to Ibiza and £8.99 for Milan. Ryanair initially said these offers are available on tickets from July 1st to July 31st, with the sale ending on Wednesday the 24th of June. However, the company decided to relaunch early, beginning flights to Spain on Sunday – the day the country lifted its border restrictions. On Sunday, a flight to Alicante left from East Midlands Airport at 3:45pm, with a flight leaving Manchester Airport and arriving in Tenerife 5:55pm. Commenting on the early relaunch, a Ryanair spokesperson said: “Although we are officially back with 1,000 daily flights from 1 July (across the network), some routes are starting from 21 June.” The Airline’s CEO Michael O’Leary has said that thousands of British families have booked holidays in Spain, Portugal and Italy this summer, and from July 1st, it will also operate flights to Greece and Cyprus, which are deemed ‘key holiday airports’. The company said it would operate the flights with safety measures such as masks, cashless transactions and limited refreshments, though the Foreign Office’s advice to passengers remains to abstain from all but essential travel.

Ryanair response

Responding to the update, Ryanair Chief Executive Eddie Wilson said: “After four months of lockdown, we welcome these moves by governments in Italy, Greece, Portugal, Spain and Cyprus to open their borders, remove travel restrictions and scrap ineffective quarantines. “Irish and British families, who have been subject to lockdown for the last 10 weeks, can now look forward to booking their much-needed family holiday to Spain, Portugal, Italy, Greece, and other Mediterranean destinations for July and August before the schools return in September. “Ryanair will be offering up to 1,000 daily flights from July 1, and we have a range of low fare seat sales, perfect for that summer getaway, which we know many parents and their kids will be looking forward to as we move out of lockdown and into the school holidays.”

Investor insights

Following the update, Ryanair shares rallied 1.68% or 0.19p 23/06/20 14:51 BST, after rallying over 3% around lunchtime. The company’s p/e ratio currently stands at 0.19. Elsewhere, TUI (LON:TUI) hinted that it would secure air bridges with Spain and Greece to secure quarantine-free holidays in July. Despite this, the company saw its shares dip 1.60% to 425.56p. Meanwhile, British Airways saw its shares rally 1.04% to 261.70p, as it announced the recommencement of leisure flights from London City Airport, and Easyjet shares rose 0.81p to 804.07p, as it announced its London to Cyprus flights were fully booked for July.

Gear4music shares bounce 21% as annual earnings more than double

Jamie Gordon
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0
Gear4music shares bounce 21% as annual earnings more than double
A rare story of financial success emerged during the Coronavirus chaos, with musical instrument and equipment retailer Gear4music (AIM:G4M) watching their shares spike on an impressive set of full-year results. For the 12 months ended 31 of March, the company booked a 9% year-on-year jump in revenues, up to £120.3 million. This led a 16% jump in gross profits, up to £31.2 million, and a year-on-year swing from a net loss of £0.2 million, to a £2.6 million profit for the full-year ended March 2020. Further, the company noted that its growth margin rose from 22.8% to 25.9% on-year, while its number of active customers jumped 11% to 807,000 and its EBITDA skyrocketed by 239%, to £7.8 million. Looking ahead, the company is in a strong position. cash at the end of the period was up year-on-year, at £7.8 million compared to £5.3 million the year before. Gear4music also noted that trading was ‘exceptionally strong’ in April and May 2020, and it remained confident in further profit improvement in FY21.

Gear4music response

Company CEO Andrew Wass, said in response to the positive update:

“With an increasing number of people throughout the COVID-19 lockdown recognising the benefits that playing , creating and recording music can bring , we have seen a significant increase in demand during this exceptional period. Positive sales trends with improved margins have continued into June, and we have also incurred lower marketing costs than we would typically expect.”

“The improvements we have made during FY20, and the exceptionally strong trading we have experienced during the lockdown period, mean we are financially stronger and better placed than ever to make the most of future growth opportunities within our market.”

“Therefore, whilst still early in the current financial year, the Board is confident of continued financial improvements during FY21 and look forward to the year ahead with optimism.”

Investor insights

Following the news, Gear4music shares rallied 20.78% or 66.49p, to 386.49p per share 23/06/20 13:59 BST. The company are not currently paying dividends.

Velocity Composites shares rally despite demand falling by 75%

Jamie Gordon
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Velocity Composites shares rally despite demand falling by 75%
Supplier of advanced composite material kits to the aerospace market, Velocity Composites (AIM:VEL), saw their losses widen year-on-year as Coronavirus hits the airline sector. The company saw its revenues fall from £12.2 million to £9.5 million on-year for the first half. This led a switch from an adjusted EBITDA of £0.2 million for the six months ended April 30 2019, to an EBITDA loss of £0.3 million during the same period in 2020. Similarly, the company’s operating loss widened from £0.4 million to £0.7 million, while its gross margin dropped from 20.9% to 20.5% year-on-year during H1. The situation was equally bleak for the company’s shareholders, with first half losses per share widening from 1.2p to 1.7p per share. Operationally, the company noted that air travel restrictions and poor airline confidence created negative impacts for aircraft production, and in turn, a circa 75% reduction in near-term customer demand. Further, Velocity Composites said that it had taken advantage of the Government’s JRS to fund the furloughing of 60% of its staff. It also stated that in April, it commenced production of PPE for NHS staff. On a brighter note, the company announced that it had secured a supply agreement with Boeing in January (LON:BOE), which it looks to capitalise on once 737 Max production resumes. Additionally, the company received NADCAP Merit approval for ‘all special processes at all Velocity production facilities’, and once normal trading resumes, they have a pipeline of over £30 million worth of tangible opportunities being developed.

Velocity Composites response

Commenting on the results, company Non-Executive Chairman Andy Beaden, said:

“The effects of the COVID-19 pandemic and resulting lockdowns on the aerospace industry have been dramatic and unprecedented. Whilst we are not where we expected to be right now, our vision and strategy for Velocity’s growth are unchanged. The increased challenges facing our industry provide an even more meaningful commercial rationale for Velocity’s technology and services, as the industry drives for even greater efficiencies in their production programmes.”

“The Company’s financial liquidity remains robust and the Board believes it has adequate cash and banking facilities to work through this disruption. With this in mind, the Board is confident that Velocity is well placed to benefit as production levels pick up and that the prospects for the Company in the mid- to long-term remain positive.”

Investor insights

Despite a seemingly mixed update, Velocity Composites shares bounced 7.14% or 1.00p, to 15.00p per share 23/06/20 10:22 BST. The company isn’t currently paying a dividend, its p/e ratio is -7.00.

UK car industry warns one in six jobs at risk

Jamie Gordon
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2
UK car industry warns one in six jobs at risk
The Society of Motor Manufacturers and Traders state that there is a ‘critical need’ for help as it claims up to one in six car industry jobs will be at risk as the furlough scheme comes to an end. With one in three staff still on furlough across the industry – and with this support coming to an end in the autumn – the SMMT are calling for renewed support in the form of VAT cuts, to help prevent job losses. Since shutting down in March, many factories are now operating with a reduced output while others remain closed, and in June alone, 6,000 job cuts have been announced across the sector. The trade body’s recent survey found that nearly a million people are employed across the sector, including 168,000 in manufacturing. With annual car and van volumes expected to fall by a third, April saw a 99.7% fall in car volumes – to the lowest number since the Second World War. This kind of decline surely cannot come without a lasting impact on performance, and in turn, job losses. The CBI’s report on Monday cited transport and motor as some of the worst-hit industries of all, as it booked the biggest slow-down in output since records began. Going forwards, the SMMT predicts a combination of reduced demand and social distancing will continue to play a part in reduced productivity. The organisation are calling for, “unfettered access to emergency funding, permanent short-time working, business rate holidays, VAT cuts and policies that boost consumer confidence”. However, the SMMT Chief Executive Mike Hawes was keen to praise the government’s so far “unprecedented” support, by way of furloughed salaries through the Job Retention Scheme. “But the job isn’t done yet. Just as we have seen in other countries, we need a package of support to restart, to build demand, volumes and growth,” he said Looking ahead, the SMMT is worried about the impact Brexit could have on any potential recovery: “A ‘no deal’ scenario would severely damage these prospects and could see volumes falling below 850,000 by 2025 – the lowest level since 1953”.

FIH Group shares decline as Momart and PHFC trading hampered

Jamie Gordon
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2
FIH Group shares decline as Momart and PHFC trading hampered
UK and Falklands essential services company FIH Group (AIM:FIH) announced on Tuesday that it had booked reduced trading activity due to the impacts of Coronavirus. The company as a whole posted an encouraging 4,9% increase in revenue, up to £44.6 million. However, its underlying pre-tax profits dipped from £3.9 million to £3.7 million year-on-year. The upside in FIH revenues was led by its Falkland Islands Company operations, which boasted an impressive 23% rise in revenues, with the island’s housebuilding and rental income largely unaffected by COVID. In turn, it was able to book a pre-tax profit bounce of 37%, up to £2.1 million.

Meanwhile, the trading of its Momart business reflected ‘a weaker global commercial art market’, and in turn reduced income from galleries, auction houses and collectors. This saw the business’s pre-tax profits slide from £1.6 million to £1.0 million year-on-year.

Similarly, its Portsmouth Harbour Ferry Company operations had to bear a significant decrease in passenger numbers in March, which offset the benefits of annual fare rises in June 2019. As a result, PHFC pre-tax profits dipped from £0.8 million to £0.6 million.

FIH said that its Falkland Islands business had not been effected, however its Momart and PHFC operations had fallen to below 10% of normal trading. This in turn, saw the company book a loss during the first quarter of FY21.

FIH response to weak Coronavirus trading

Responding to recent trading, the company has furloughed 78% of its staff at Momart and those based in Gosport. It has also cut pay for Board members and cancelled all short-term capital expenditure. The situation is equally bleak for the company’s shareholders, with underlying EPS dipping from 24.1p to 21.7p year-on-year and diluted EPS of 24.1 in 2019 switching to a 37.8p loss during 2020. Further, the company said that it would implement a short-term cancellation on planned dividend payments. Commenting on today’s results, FIH Chief Executive John Foster said:

“We were on track to announce another strong trading performance for the year and while COVID-19 prevented us from doing so, we still recorded a good overall result. Like most businesses our focus is now on ensuring a smooth return to profitability whilst avoiding unnecessary damage to the long-term prospects of the business. Fortunately, FIH is well placed to do so backed by a strong balance sheet with good additional liquidity should it be required.”

“We believe we took the necessary cost reducing actions sufficiently early and that we have the resources to support the return to normal trading levels. This is of course subject to a reasonable time period for the recovery in passenger numbers in Portsmouth and a return in confidence and activity levels in the global commercial art market.”

“Given the environment, FIH is reasonably well positioned and I believe the fundamentals of the Group remain strong. We are therefore confident with regard to the medium to long term prospects for the business whilst also being mindful that the current crisis might bring M&A opportunities that would not normally arise.”

Investor insights

In light of the news, FIH shares dipped 4.14% or 12.00p to 278.00p per share. The company has a p/e ratio of 11.89 and a dividend yield of 1.69%.

Dow Jones flattened by housing market mixed messages

Jamie Gordon
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3
Dow Jones flattened by housing market mixed messages
The Dow Jones had a tough time deciding where it wanted to go after the bell, with US housing market news neither going one way or the other. After dropping over 150 points, the index bounced, fluctuated and now sits 0.34% up at 25,959 points. The confusion began with the headline that monthly home sales were at a nine-and-a-half year low in May, with US home sales falling 9.7% to just 3.91 million units. This fall was far greater than the anticipated drop of 3%, to 4.12 million during May, and represents the worst sale figure since October 2010. Existing home sales constitute about 90% of all US home sales, and the number of owned homes on the market in May was down 18.8% year-on-year.
Further, existing home sales were down 26.6% year-on-year during May, which represents the largest annual decrease since 1982.
On the other hand, June saw a decade-high number of mortgage applications, likely because of the lapse in activity the month before, in addition to some cut-price offerings from those keen -but until now unable – to sell their properties. The issue now becomes one of whether home sales will show a resurgence during the remainder of summer. Much like the Dow Jones today, analysts appear to be caught in two minds. On one side, the number of mortgage applications would suggest a healthy rebound is on the way when the current month’s data is released. On the contrary, and perhaps with a longer term outlook in mind, bears will cite the 44 million unemployment claims and limited stock of new homes being built, and perhaps anticipate any kind of rebound will be muted at best. “Home sales may bounce with pent-up demand following the shutdown of the economy starting in March, but the massive scale of job losses and cautious consumers rebuilding their savings may limit the sales turnover of the housing stock,” said Chris Rupkey, chief economist at MUFG in New York. One thing we ought to keep in mind, is the fact that fewer sales don’t necessarily correspond to lower prices. While median US house prices only saw an annual increase of 2.4% – the smallest increase since February 2012 – we can expect this rate of growth to accelerate as the summer progresses. No matter the anticipated hindrances to home-buying appetite, it is likely the demand for US homes will recover more quickly than the supply of new-builds, which has an inevitable effect on prices.

Happily, the Dow Jones was willing to let the contrasting house market data cancel each-other out; and happier still to ignore the growing number of US Coronavirus cases, as well as President Trump‘s ill-conceived ‘joke’ about slowing down testing to stop that number rising any further.

Plans filed for £770m Greenwich Peninsula tower cluster

Bronte Carvalho
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0
Plans filed for £770m Greenwich Peninsula tower cluster
Property developer and investor U+I (LON: UAI) has filed a planning application for a “major mixed-use” £770 million cluster of towers as part of its ongoing Morden Wharf scheme on the Greenwich Peninsula. The company’s share price has dropped, however, amidst widespread market uncertainty and the news that the Bank of England is expecting to wind down its quantitative easing measures in the months ahead, leaving the economy to fend for itself towards the end of the year. The Morden Wharf development plans include around 1,500 new homes on a six acre site, featuring “high-quality public realm” and a landscaped park running alongside the River Thames. A total of 12 residential tower blocks make up the base of the project – with additional room for commercial, retail and community spaces – as well as a new boathouse for Queen Elizabeth II’s royal barge, the Gloriana. Designed by private Dutch architecture firm OMA (Office for Metropolitan Architecture), the proposal features a riverfront park which will “offer fantastic views of the Maritime Greenwich World Heritage Site and Canary Wharf across the River Thames”. U+I has emphasised that the project’s design is “inspired by the site’s history as a marshland and will add a significant new ecological resource to the area” and is intended to “address the existing deficit of open space in the area”. The scheme offers a mix of private and commercial sales – of which 35% are described by the development firm as “affordable” – with a focus on family homes with “play and recreation” space for all ages. The project is predicted to generate some 1,100 permanent new jobs and an additional 2,400 during the construction process. Capitalising on the site’s rich history, the Morden Wharf is renovating “an existing warehouse on the site of an old pub, The Sea Witch, that was destroyed by a bomb during the Second World War” into a new bar, adding to the long list of amenities that make the proposed scheme so attractive to potential buyers. Overlooking the River Thames and only a short tube journey away from Canary Wharf and the o2 arena, the project is sure to drum up considerable interest. U+I Chief Development Officer Richard Upton welcomed the proposal with a statement on the company’s official website: “Morden Wharf will bring together new homes, retail, leisure, employment and an extensive riverfront park, to create a diverse community rooted in the site’s heritage. Centred on a beautiful park and world-class public realm this scheme is set to transform the area into a distinctive, green, mixed-use development, while driving growth and employment and delivering 1,500 much-needed new homes”. The plans are currently sitting with the Royal Borough of Greenwich waiting for approval, following “extensive consultation with the local community and key stakeholders”.

Investor insight

U+I’s share price has failed to jump following the firm’s announcement, down a disappointing 4.76% or GBX -4.00 at GBX 80.00 BST 15:37 22/06/20. A positive leap, however, from a nadir of GBX 76.30 during March. The company’s dividend yield currently stands at 0.099%.

CBI states UK factory output fell at fastest rate since records began

Jamie Gordon
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CBI states UK factory output fell at fastest rate since records began
The CBI noted that UK factory output had fallen at its fastest pace since records began in 1975, during the first three months of the year. The pressure group stated that 360 firms responded to their survey between late Mate and mid June, and of that number, an unsurprising 74% said they had produced less in the three months to the end of March. The CBI said the negative balance, between gross increase and decrease in factory outputs, reflected a 57 percentage point dip -which is the largest fall since records began in 1975. While most subsectors of manufacturing reported falls, the greatest declines were seen in vehicle, transport, mechanical engineering and metal products. Despite a modest recovery in June, the CBI noted that order books remained weak, with 71% of firms reporting that order books were below normal levels for the time of year – down 58 points in June versus negative 62 points in May. Similarly, export books were at their lowest level on record, with a mere 2% of respondents stating that their output was better than normal. Commenting on the results, CBI Chief Economist Anna Leach stated: “The UK manufacturing sector remained in a deep downturn in June due to the ongoing Covid-19 crisis. Output volumes declined at a new record pace and export order books fell to an all-time low, reflecting the significant fall in demand in the UK and abroad. Firms are again hoping this will ease somewhat in the next three months.” “The government has already undertaken a huge amount of work to provide financial lifelines to businesses throughout this unprecedented period. With firms having been encouraged to restart operations, the government must continue to engage with the sector to understand their specific concerns and provide support as needed.” Further to the CBI’s announcement, the Employers’ Organisation stated that no evidence had been found in its monthly industrial trends survey to suggest that the recovery in high street and online spending had filtered through into greater demand for British manufactured goods.
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