October car sales fall, economy slows
Growth in the UK economy has slowed in the three months to October, falling to 0.4% from the 0.6% in the three months to September.
The Office for National Statistics (ONS) revealed the slowed growth as car sales fell amid Brexit uncertainty.
Rob Kent-Smith, head of national accounts at the ONS, said: “GDP growth slowed going into the autumn after a strong summer, with a softening in services sector growth mainly due to a fall in car sales.”
“This was offset by a strong showing from IT and accountancy.”
“Manufacturing saw no growth at all in the latest three months, mainly due to a decline in the often-erratic pharmaceutical industry.”
“Construction, while slowing slightly, continued its recent solid performance with growth in housebuilding and infrastructure,” he added.
The dip in car sales reflects the worst period for car sales since the financial crisis.
The monthly GDP growth rate picked up from no growth in September to 0.1% in October. Manufacturing growth fell 0.9%. Output in the construction industry fell 0.2%.
October also saw the trade deficit increase to £3.1 billion.
The figures “come on the heels of more up-to-date survey evidence which suggests the economy is approaching stall speed and could even contract as we move into 2019 unless demand revives,” said Chris Williamson, the chief business economist at IHS Markit.
“The outlook for growth… very much depends on Brexit developments over the coming days, weeks and months, and the surrounding uncertainty makes forecasting extremely difficult.”
“However, what’s clearly evident is that the widely-expected slowing of the economy in the lead-up to the UK’s separation from the EU is now upon us, leaving the big question of whether the economy will bounce back alongside a smooth Brexit process or slide into decline,” he added.
Monday also saw the pound fall to an 18-month low.
Interserve shares crash 75% as group seeks rescue plan
Shares in Interserve plunged by over 75% on Monday after news emerged that the outsourcing firm was seeking a rescue deal.
In early trading, shares fell to just 6p, down from their 700p peak in 2014.
Interserve £500 million of debts but the group said over the weekend that it was “making good progress” on a recovery plan.
The group employs 45,000 people in the UK and a total of 75,000 people globally
On Monday morning, the group announced a new £25 million Welsh public sector contract for the redevelopment of Prince Charles Hospital in Merthyr. Work will start this month and continue till 2021.
Chief executive Debbie White said: “The fundamentals of our business remain strong.”
“The deleveraging plan will give Interserve a strong long-term capital structure and provide a solid foundation on which to build the future success of the group.”
The firm said in a statement: “Although the form of the deleveraging plan remains to be finalised, it is likely to involve the conversion of a substantial proportion of the group’s external borrowings into new equity, an element of which may be sold to existing shareholders and potentially other investors.”
When shares crashed in early trading, the value of Interserve fell less than £9 million.
Unite, the UK’s biggest union, has called on ministers to carry out contingency plans and ban new contracts between the outsourcing firm and the public sector.
“The financial difficulties that Interserve finds itself in is another dire warning of the dangers of outsourcing public services for private profit. We could be facing Carillion mark two,” said Unite assistant general secretary Gail Cartmail.
“The mistakes made before the collapse of Carillon in January 2018 appear in danger of being repeated – if so, this could see the hard-pressed taxpayer picking up the tab – yet again.”
Shares (LON: IRV) have slightly recovered and are trading -50.6% (1619GMT).
Brexit vote delayed, pound falls to 18-month low
Monday saw the pound fall to an 18-month low following reports of Theresa May’s plans to delay her Brexit vote.
The sterling fell to its lowest rate since June 2017 against the dollar, down to $1.2656. It fell to less than €1.11 against the euro.
David Cheetham, who is the chief market analyst at xtb, said: “The negative reaction in the markets is more likely due to what it means for her position rather than the failure to win the vote – with even her staunchest supporters already highly sceptical as to whether the bill would pass.”
The FTSE 100 was less badly hit, however shares in the housing sector are trading down. Shares in Baratt Developments (LON: BDEV) and Taylor Wimpey (LON: TW) are trading down by about 4%, whilst shares in Persimmon (LON: PSN) are down 3%.
On the news that the prime minister will delay the vote that was scheduled for Tuesday, Jeremy Corbyn said: “The government has decided Theresa May’s Brexit deal is so disastrous that it has taken the desperate step of delaying its own vote at the eleventh hour.”
“We have known for at least two weeks that Theresa May’s worst of all worlds deal was going to be rejected by parliament because it is damaging for Britain.”
“Instead, she ploughed ahead when she should have gone back to Brussels to renegotiate or called an election so the public could elect a new government that could do so.”
May will make a statement to MPs on Monday over her decision to delay the vote. Her statement will be followed by a statement from Commons leader Andrea Leadsom and from the Brexit secretary Stephen Barclay.
Nigel Dodds, the DUP deputy leader, has said the current Brexit situation is “quite frankly a bit of a shambles”.
Scottish First Minister Nicola Sturgeon said: “Yet again the interests of the Tory party are a higher priority for her than anything else.”
Lloyds share price falls to fresh 2-year low as PM May delays meaningful vote
The Lloyds share price (LON:LLOY) fell to fresh 2-year lows on Monday as the UK government was plunged into chaos as reports broke Theresa May was going to pull the meaningful vote scheduled for Tuesday.
The drop in the Lloyds’ share price was accompanied by a decline in the FTSE 100 and peers in the banking sector.
Lloyds shares fell as low as 52.96p on Monday morning, a level not touched since October 2016.
Ongoing uncertainty surrounding the UK exit of the EU is raising fears over the long-term health of the UK economy on which Lloyds is almost exclusively reliant on.
Theresa May failed to win enough support for her Brexit deal with the numbers stacked against her in the meaningful vote in parliament.
The UK Prime Minister has been under pressure from sections of her own party who have vocally condemned a deal that only scrapped through her cabinet with the resignation of two ministers.
The concern for investors in Lloyds and the rest of the banking sector is the possibility of the UK leaving the EU with no deal and the potential negative impact on the UK economy.
The Bank of England has made dramatic predictions for the UK economy in the case of a no deal including a 30% drop in house prices and sharp declines in overall GDP. Both of these scenarios would ravage the profitability of Lloyds who is reliant on lending to businesses and individuals in the UK.
Theresa May failure
Theresa May failed to win enough support for her Brexit deal with the numbers stacked against her in the meaningful vote in parliament.
The UK Prime Minister has been under pressure from sections of her own party who have vocally condemned a deal that only scrapped through her cabinet with the resignation of two ministers.
The concern for investors in Lloyds and the rest of the banking sector is the possibility of the UK leaving the EU with no deal and the potential negative impact on the UK economy.
The Bank of England has made dramatic predictions for the UK economy in the case of a no deal including a 30% drop in house prices and sharp declines in overall GDP. Both of these scenarios would ravage the profitability of Lloyds who is reliant on lending to businesses and individuals in the UK.
Strategic Partnership
The ongoing uncertainty created by Brexit hasn’t held Lloyds back from forging strategic partnerships in the form of a wealth management tie up with Schroders to harness Lloyds existing channels and customer base to provide fresh revenue streams. António Horta-Osório, Group CEO of Lloyds, commented: “I am delighted to be announcing this exciting partnership with Schroders and the creation of a new market leading wealth management proposition. This provides a strong platform for growth and is a further step in the delivery of our strategic objectives.” The move highlights Lloyds forward thinking strategy so while Brexit may cause short term volatility for investors in Lloyds shares, the future past Brexit promises increased revenue channels.Frontera Resources share price slides as investors await legal update
Frontera Resources (LON:FRR) shares continued to slide on Monday as the company awaits the next stage in crucial legal proceedings.
The Frontera Resources shares price has been dogged in 2018 by legal proceedings with a non-exec director Stephen Hope, arbitration with the Georgian state over a supply sharing agreement and the ongoing restructuring of debt and capital raising.
The most pressing of these matters is the Cayman Grand Court case for which defendant Hope has until December 18th to file a defence.
Frontera’s fully-owned subsidiary, Frontera International Corporation, has filled a case with the Grand Court of the Cayman Islands against Frontera non-exec director Stephen Hope and Outrider Management, the Californian-based Investment Advisor Hope himself founded.
Frontera Resources allege Hope broke his fiduciary duties as company director and conspired with Outrider for his own personal gain.
Frontera have filed damages amounting to $56.3 million against Hope and Outrider Management LLC.
For a company producing just $1.8m in revenue from oil & gas sales over a 6-month period, the near-term fortunes of Frontera and their investors are likely to be dictated by the outcome of the Cayman case against Outrider.
The case relates to the issuing of loan notes in 2016 in a restructuring of debt that involved 10% notes issued in 2011 being reissued as non-convertible notes to Outrider Master Fund. Stephen Hope, a non-exec director of Frontera Resources, has an interest in excess of 75% in Outrider Management.
The restructuring was imperative for any semblance of shareholder value as the prior agreement was causing ongoing dilution to the share price.
Despite undergoing debt restructuring, Frontera have a long-term debt pile of $35m.
Funding Operations
Frontera Resources are extracting oil in Georgia and are seeking to increase production but require additional funds to enact their operational plans and achieve the levels of production they need to fund ongoing operations. With a significant debt pile, Frontera turned to equity investors to fund their operational cash requirements through 2018. Frontera Resources raised funds through investment platform PrimaryBid in the form of a £2.5 million placing in February 2018. Chief Executive Officer Zaza Mamulaishvili said at the time: “We are delighted to have once again used PrimaryBid’s innovative platform that allowed investors who have supported us in the past, along with a growing number of new investors, to access this offer. It is very encouraging to see such interest in the company and its current operations,” The £2.5 million was raised at 0.466 pence per share representing a 37% premium to the 0.34p share price of today. The investor interest in the company may be pleasing to the board but existing investors could well be concerned the amount raised barely equates to one year’s worth of non-cash interest payments and the company said in their half yearly report Frontera ‘plans to continue to reduce costs and raise additional financing in order to continue to facilitate the company’s 2018 operating plan’. This could mean further dilution to equity investors given, by the companies own admission, tapping up credit ‘markets may be adversely affected’.Cayman Grand Court
A positive outcome form the Cayman case for Frontera Resources may see a haircut on current debt obligations or a cash consideration that could reduce the need for further capital raising. Either of these scenarios would undoubtedly be a positive for the share price but Frontera Resources will be left in a precarious financial situation if the case drags on or is thrown out by the Cayman Grand Court.Primark owner warns of “challenging” retail environment
The company behind Primark has warned of a tough market for retail, which will lead to “challenging” sales in the build-up to Christmas.
At the annual general meeting today the chairman of Associated British Foods (ABF), Michael McLintock, will say that “during November Primark trading was challenging, in a tough retail market, but with careful inventory management and improved margins, our expectation for the increase in Primark profit is unchanged.”
“At this early stage in our new financial year, sales and profit for the first eight weeks of trading for the group were in line with expectations.”
Neil Wilson, the chief market analyst at Markets.com, said: “We know it’s tough out there and share prices across the piece reflect that already to a large degree.”
“But Primark has done better than most and the fact that it too is facing severe headwinds is a concern for the sector as a whole. ABF shares shipped 2.5% on this and we are seeing some read across to other retail stocks.”
“If Primark is struggling, what chance does the rest of the high street have? Some of the weaker high street stocks are sliding even as the broader market climbs.”
“M&S (LON: MKS) shares are down 0.5% on the read across from this – we know that Marks and Spencer is facing a bit of make or break Christmas.
“Debenhams (LON: DEB), another one on the ropes and needing a big uplift from this holiday season, has dropped 2%.”
Shares in the group (LON: ABF) are currently trading -4.55% (1358GMT).
Nissan announces 150,000 vehicle recall
Nissan (TYO: 7201) said on Friday that it will recall 150,000 cars from Japan due to concerns of improper tests carried out.
The Japanese car manufacturer said in a press release that improper inspections may have been carried out on vehicles before they were shipped from plants in Japan.
“Strict adherence to compliance is a top priority for Nissan’s management, and if issues are discovered, appropriate measures will be taken,” said the group.
“Nissan is committed to promoting and enforcing compliance and awareness thereof in all operational areas.”
“Through the steadfast implementation of these initiatives, Nissan will work diligently to regain the trust of its valued customers and stakeholders in Japan.”
The car manufacturer had a similar recall issue in September when the group recalled over 165,000 cars from Canada and the US.
Nissan is amid a scandal involving the former chairman, Carlos Ghosn who was arrested for alleged financial misconduct.
Both Nissan and Mitsibushi (TYO: 8058) fired Ghosn, “based on the copious amount and compelling nature of the evidence of misconduct presented.”
The chairman has denied allegations of financial misconduct but is yet to speak publicly.
Kana Sasakura, a criminal law professor at Kobe’s Konan University, said on Ghosn’s silence: “Usually a good criminal defence lawyer would advise the client to remain silent. If they talk, it might become detrimental.”
It was reported that he and colleague Greg Kelly understated Ghosn’s income by about 5 billion yen ($44 million) over a five-year period ending in March 2015.
Housebuilder Abbey shares fall 5% despite rise in revenue
Shares in the Housebuilder Abbey fell this morning after the group warned of rising costs and “uncertain external conditions”.
The group issued a trading update on Friday, revealing a rise in pre-tax profit from €23.42 million last year to €23.93 million.
Abbey’s year-on-year revenue rose 22% in its first half-year results from €90.4 million to €110.7 million.
Charles Gallagher, the group’s chairman, said: “Whilst our UK forward sales position gives confidence that a reasonable result for the year will be achieved the continuing uncertain external conditions are cause for concern.”
“The group will continue to progress all its activities but intends to be cautious about new investments in the months ahead,” he added.
In a statement, the group said: “Trading in the UK has held up well over the six months. Margins, as previously guided, have reduced in line with our expectations. Forward sales continue to be encouraging. In particular our projects aimed directly at first-time buyers are selling well. Production continues to be impacted by tight labour and materials markets and some delays have been experienced.”
Shares in Abbey (LON: ABBY) are trading 5.43% lower (1112GMT).
In other property news, housebuilder Berkeley Group (LON: BKG) announced on Friday that it will raise its profit guidance for the year by over 5%.
This is despite pre-tax profit for the first of the year falling from £539.9 million a year ago to £401.2 million.
AJ Bell shares soar 33% on debut
AJ Bell began trading on Friday, with shares surging over 30% to 213p.
The investment firm’s price was set at 160p this morning, valuing the group at around £651 million.
AJ Bell floated 108,264,032 ordinary shares – 26.6% of its issued share capital.
“The IPO is a significant milestone for the business and I see it as firing the starting gun on our next phase of growth, which I’m massively excited about leading the business through,” said founder and boss Andy Bell.
“The demand for our IPO from both blue-chip institutions and our own customers was a real endorsement of our business and the market opportunities that lie ahead of us, and I’m pleased to welcome our new shareholders on board.”
The company reported revenues of £89.7 million, up 19% last year. Pre-tax profit was up 31% to £28.4 million.
London has had several disappointing London listings this year including Aston Martin and Funding Circle amid market volatility and Brexit fears.
A banker who did not want to be named said of the Aston Martin and Funding Circle debuts: “This is brutal. The IPO market stinks for growth stocks which do not have an earnings track record.”
Shares in AJ Bell (LON: AJB) are currently trading +33.63% at 216p (1049GMT).
Bitcoin hits fresh lows, falling below $3,300
Bitcoin has fallen to a record low for 2018, falling below $3,300 on Friday.
According to CoinDesk, bitcoin price data plummeted 11% in the past 24 hours dropping to lows of $3,293.31.
The cryptocurrency has fallen over 80% from all-time highs of almost $20,000.
Naeem Aslam, the chief market analyst at Think Markets, said: “The price of bitcoin has crippled on the back of this and I think it is likely that the price may not only drop below the $2,000 mark but with this kind of momentum behind it, the price can test the $1,500 level.”
“Simply put, the bad news keeps coming just like cockroaches coming out of a hole.”
Cryptocurrencies are a controversial form of currency since their entrance into the mainstream finance scene, given their unregulated nature.
Government officials and financial institutions have expressed concerns over its decentralised nature.
JP Morgan Boss (NYSE: JPM) Jamie Dimon famously said that it was a “fraud” only fit for use by drug dealers, murderers and “people living in places such as North Korea”.
Bank of England Governor Mark Carney has also called for a crackdown, saying: “Authorities are rightly concerned that given their inefficiency and anonymity, one of the main reasons for their use is to shield illicit activities. This cannot be condoned. Anarchy may reign on the dark web, but in the UK it’s just a song that your parents used to listen to.”
Following the fresh low, it seems that the so-called ‘Bitcoin Bubble’ has well and truly burst.