FTSE bounces back from trade war tensions

Jamie Gordon
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FTSE bounces back from trade war tensions
The FTSE 100 has risen ahead of expectations today, as it bounces back from a period of volatility caused by the tariff war between the US and China. While the tensions have not been fully quelled, the implications of retaliatory tariffs have caused the culprits to take a breather; with technology, manufacturing and mining sectors suffering the immediate effects of tariffs, while high street retailers and the housing sector suffered the aftermath of depleted consumer confidence. Today, with new revelations on the trade war running thin, markets across Europe have begun a recovery as liquidity has increased.

Fiona Cincotta, Senior Analyst at City Index, said, “Although the increasingly hostile trade relations between China and the US still form the backdrop for some of the equity trading this morning, for the moment the absence of news on this front is granting the market a brief chance to recover. European stock markets are moving gingerly higher this morning with the FTSE and the CAC both trading up 0.2% and the DAX up 0.4%. Strong earnings including from the likes of car maker Peugeot are helping the indices move higher.”

Since that comment, FTSE had risen 0.7 percent by midday and casualties of the tariff war, such as Airbus (LON:AIR), have rallied 1.05 percent since trading began. FTSE large cap risers include Sky (LON:SKY), who are up 2.81 percent due to the bidding war between Fox and Comcast. Also, Capita (LON:CPI) are up 6.8 percent following the announcement of a new government contract and offload of its subsidiary, Park Eye. Small cap risers include AFC Energy, who rallied 33.7 percent, and Xaar, who have rallied 6.1 percent.

Capita shares rally with new contract and subsidiary offloads

Jamie Gordon
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Capita shares rally with new contract and subsidiary offloads
Capita plc (LON:CPI) has seen its share price rally after turning round a year of loss, with the announcement of a long-term contract and the sale of its subsidiary, Park Eye. The UK outsourcing firm confirmed today that it had secured a six year contract with the Department of Education; to print, distribute and collate Key Stage One and Two primary school assessments. The contract will phase in the new assessment papers between September 2018 and September 2019, and is reported to be worth £109 million. In addition to providing assessment material, the contract requires Capita to mark 4 million papers a year and provide a secure portal for 16,000 schools and 4,000 test makers to access results and update records in one place. This new development is a perfect combination for the firm. Not only does it further Capita’s interest in alligning itself with more central government contracts, but harnesses its extensive software capabilities and experience in working on public sector contacts. In a statement, the company’s Chief Executive Jon Lewis said: “Capita is an established and experienced partner to the education sector and this contract further reinforces our strategy. We look forward to using our technology and service management capabilities to identify and deliver efficiencies and improvements ensuring both value for money and a positive experience for schools across England.” In addition to this, Capita’s new CEO has taken steps to further his plans to simply the company and focus on turning a profit within the firm’s core assets by 2020. The mantra being – doing “[…] fewer things better”. After selling its Supplier Assessment Services a month ago for £160 million, the firm announced last Thursday that it had finalised a deal to offload Park Eye to Macquarie for £235 million. As a result, Capita are well in excess of their £300 million disposals target set back in April, with Jon Lewis announcing that the move to sell off Park Eye marked, “[…] a further step in executing the strategy announced in April aimed at simplifying and strengthening the business to deliver future success”. The firm have suffered losses from over-extending themselves and have been forced to terminate contracts without having any means of replacing those contracts with new ones. Going forwards, the company will hope to benefit from their structural remodeling and capitalise on the revenues accrued in its rights issue in May, which saw it sell over 973 million new shares and raise £681 million. The firm’s share price has rallied 5.71 percent or 9.2p, to 170.35p per share, since trading started. Analysts from Shore Capital have reiterated their ‘Hold’ stance on Capita stock.    

Tesla opens Shanghai factory amidst tariff tensions

Jamie Gordon
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Tesla opens Shanghai factory amidst tariff tensions
Tesla Inc (LON:TSLA) are to open their first factory outside of the US, with CEO Elon Musk meeting Shanghai’s mayor Ying Yong to make the announcement yesterday. The new factory is being built with a multiplicity of factors in mind. Firstly, the reciprocal Sino-US tariff tensions now mean that a 25 percent duty will be added to every Tesla bought in China and shipped from Tesla’s US factory, which is an issue considering China is Tesla’s second largest market. Secondly, China is the world’s fastest-growing vehicle market, with 28 million cars bought last year. This number is even more significant when one considers that the Chinese government is pushing an initiative for a minimum of 10 percent of all new cars sold to be electric. Thirdly, it is estimated that the new factory will have the capacity to turn out more than 500,000 units per annum. This is an appealing thought for a company facing pressure for its losses and underproduction, especially on its new Model 3, which has only just hit its production target of 5,000 units per week. Additionally, Tesla’s cost per unit will drop as it outsources a large proportion of its production and thus labour cost to China. “Tesla is deeply committed to the Chinese market,” said a Tesla spokesperson. “The tariffs may have accelerated [Tesla’s] plans for sure, but longer term they need a presence in the largest auto market globally,” said Cowen analyst Jeffrey Osborne. Following the announcement, Tesla added approximately $1.6 billion to its value in the first minutes of trading this morning – the consensus among most analysts is on a ‘Hold’ stance. The firm’s shares are currently trading at $322.47, up 1.24 percent or $3.96 since trading started. Going forwards, Tesla will have to answer questions surrounding their business model and where they intend to draw the capital for this size of investment – which will trump Volkswagen and GM and become Shanghai’s largest source of foreign investment to date. Other companies have been weary of venturing into China on account of having to share their technology with other firms. However, as proven by Tesla’s rise sparking an electric revolution – Fiat-Chrysler and Maserati being the most recent to join the trend – CEO Elon Musk wants to spread the electric vehicle market and technology, not monopolise it.

Juventus shares rally with Ronaldo transfer confirmation

Jamie Gordon
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Juventus shares rally with Ronaldo transfer confirmation
Juventus Football Club (LON:JUVE) saw their share price spike following confirmation of a €100 million transfer deal for Cristiano Ronaldo. Ronaldo now boasts the highest price tag for a player over the age of 30, as well as being the first player in that age group to be valued in the hundreds of millions of euros. This comes nine years after he joined Real Madrid and set the previous world transfer record of €94 million. The 33 year old moves to Turin after scoring goals that put Juventus out of the Champions League two years in a row, as well as becoming Real Madrid’s all-time top goal scorer. The player said he is seeking a new challenge. “I only have feelings of huge thanks for [Real Madrid], for the fans and for this city,” he said. “But I think the time has come to open a new stage in my life and that’s why I asked the club to accept to transfer me.” The move will mean that Juventus’ June squad valuation will be updated to $1.59 billion, while Chairman Andrea Agnelli’s net worth stands at $13.5 billion. Following rallies during negotiations last week, yesterday’s transfer confirmation saw the club’s share price spike 38.27 percent, or €0.31, to €1.12. Juventus’ share price has dipped 4.18 percent or €0.038 in trading this morning.  

Pfizer shares rally following talks with Trump

Jamie Gordon
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Pfizer shares rally following talks with Trump
Pfizer Inc. (LON:PFE) shares have rallied this morning, following talks with President Trump and an agreement to defer its scheduled price increases. The pharmaceutical giant is one of many firms that implements incremental drug price hikes every half year. However, after being singled out among “others” in a tweet by President Trump on Monday, the firm’s CEO Ian Read has since had “extensive” talks with the President. Trump’s tweet stated that price rises were companies, “[…] merely taking advantage of the poor and others unable to defend themselves, while at the same time giving bargain basement prices to other countries in Europe & elsewhere.” Despite Pfizer’s share price rising 0.5 percent in Monday’s early afternoon trading following the tweet, the company were eager to publicly address the President’s concerns, promising to revert the price rises that came into effect on the first of July. A Pfizer spokesperson said they would revert prices, ” […] as soon as technically possible, and the prices will remain in effect until the earlier of when the president’s blueprint goes into effect or the end of the year – whichever is sooner.” The plan is to freeze prices alongside President Trump’s healthcare policy, Pfizer shares the vision of the President’s ‘Trump Care’ and hopes the price reversal will provide, “an opportunity to work on his blueprint to strengthen the healthcare system and provide more access for patients.” “Pfizer shares the President’s concern for patients and commitment to providing affordable access to the medicines they need,” said Pfizer CEO Ian Read. Following the discussions with Ian Read, President trump took to Twitter once again, this time to praise Pfizer, “We applaud Pfizer for this decision and desire other companies do the same”. The firms’s share price is up $0.27 or 0.73 percent this morning, to $37.43 a share. Analysts from Morgan Stanley have reiterated their ‘Buy’ stance on Pfizer stock.

Safestyle shares plummet after warning on losses

Miranda Wadham
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Safestyle shares plummet after warning on losses
Window manufacturer Safestyle UK saw shares tumble nearly 20 percent on Wednesday morning, after warning that it would be likely to report an underlying loss for the full year. The group, who manufacturer PVCu replacement windows and doors to the UK homeowner market, said gross margins had been impacted by higher digital marketing costs and sales commissions. In an update to the markets the Board and Executive Team laid out three key priorities – the stabilisation of Safestyle’s organisation, the previously announced legal action against NIAMIC Developments Ltd (trading as SafeGlaze UK) and a comprehensive review of the Group’s current trading and outlook. Despite an increased order intake over the last few weeks, “albeit at a lower level than the previous management team had expected”, gross margins had been impacted over the recent period. After assessing the market and operational outlook for the remainder of the year the group said: “Providing there is no further material deterioration in market conditions, we expect Group revenues to be below market expectations and for the Group to report a small underlying loss before tax for the full year”. “Over the medium and longer term, the Board remains confident of the Group’s prospects. The Board expects exit momentum from the current year to benefit from the programme of costs and margin improvement actions now in train which are expected to result in material annualised savings benefiting future financial years.” Shares in Safestyle (LON:SFE) are currently trading down 17.86 percent at 40.82 (1041GMT).  

Micro Focus shares tumble after falling into loss

Miranda Wadham
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Micro Focus shares tumble after falling into loss
Shares in the UK’s largest software group Micro Focus (LON:MCRO) fell nearly 10 percent in morning trading on Wednesday, after reporting a loss for the first half of the financial year. The group disclosed a $68.5 million pre-tax loss for the six months to April, a significant fall from the $83.2 million profit recorded over the previous period. Despite this, revenues increased to $1.9 billion from $696 million previously, but on a constant currency basis fell 8 percent year-on-year. Net debt hit $4.34 billion at the end of April, up from $1.41 billion the year before, but this is set to be boosted by the sale of its Linux business, SUSE, for $2.54 billiom in cash. Micro Focus had previously struggled to integrate Hewlett-Packard Enterprise, but executive chairman Kevin Loosemore said: “I am pleased to report that since March there has been an improved momentum in the HPE Software integration process and a slowdown in the rate of revenue decline. This has led to revenues for the period being at the better end of management guidance.” Micro Focus (LON:MCRO) shares are currently trading down 9.36 percent at 1,181.50 (1031GMT).

21st Century Fox increase bid offer for Sky

Miranda Wadham
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21st Century Fox increase bid offer for Sky
21st Century Fox increased their takeover bid offer for Sky (LON:SKY) on Wednesday, upping their offer to £14 per share and beating a rival offer from Comcast. The new offer values Sky at £24.5 billion, representing a 12 percent premium to Comcast’s £22 billion bid pitched at £12.50 per share. 21st Century Fox already owns 39 percent of Sky and is widely expected to receive regulatory approval from the UK this week after initially reaching a deal in December 2016. The increased offer this morning was up from £10.75 per share. Rupert Murdoch, the owner of Fox, has been trying to increase his share in Sky for some time but has been held up by fears that it could give him too much power over UK media. Fox has been trying to address those concerns through the disposal of certain parts of the business, including selling Sky News to Disney once the deal is complete. Shares in Sky are currently trading down 0.97 percent at 1,487.00 (1005GMT).

PageGroup report record profit despite Brexit uncertainty

Miranda Wadham
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PageGroup report record profit despite Brexit uncertainty
Recruitment company PageGroup (LON:PAGE) raised its 2018 guidance on Wednesday, after reporting a record quarterly gross profit. In a trading update, the group said full-year operating profit was likely to be slightly ahead of market consensus after a 12.5 percent rise in earnings in the first half. Gross profit for the six months through June rose to £396 million, growing by 14.2 percent on a constant currency basis. This came despite UK figures being impacted by Brexit uncertainty, sending profits down 4.5 percent. This fall was largely offset by growth of 11.3 percent, 20.2 percent and 14.1 percent in Asia Pacific, Europe and the Americas. “We are pleased with the group’s strong performance in the first half,” chief executive Steve Ingham said. “However, there remain challenges in a number of our markets, including Brexit in the UK, trading in Catalonia and forthcoming elections in Latin America. “We will continue to focus on driving profitable growth as we progress towards our vision of 10,000 headcount, £1bn of gross profit and £200m – £250m of operating profit, while being able to respond quickly to any changes in market conditions. “In 2018 we now expect operating profit to be slightly ahead of the consensus of current market forecasts.” Shares in PageGroup (LON:PAGE) are currently trading down 0.76 percent at 587.00 (0947GMT).

JD Wetherspoon sales up in sunny summer period

Miranda Wadham
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JD Wetherspoon sales up in sunny summer period
Pub chain JD Wetherspoon (LON:JDW) shares shot up on Wednesday morning, after saying full-year performance was likely to be in line with expectations after a significant rise in sales. In the year to date, like-for-like sales increased by 5.2 percent and total sales by 4.2 percent. For the 10 weeks to 8 July 2018, like-for-like sales increased by 5.2 percent and total sales by 5.6 percent, benefitting from a period of hot weather and the World Cup. “As in the current year, we anticipate considerable cost increases next year, in areas including business rates, the sugar tax, utility taxes and wages. In addition, as a result of an increase in our ‘swaps’, our interest rates will rise by around £7 million,” the company said. As usual, Wetherspoon chairman Tim Martin took the opportunity to promulgate the benefits of Brexit: “We are frequently asked about the effect of Brexit on the Company and the economy. The main advantage of Brexit is that the EU is a protectionist system that imposes high tariffs on non-EU imports such as wine, rice, coffee, oranges, children’s shoes and clothes, and over 12,000 other products. “Leaving the EU allows the UK to adopt the approach of countries like Singapore, Hong Kong, Switzerland and Australia by dismantling these tariff walls, which improves general living standards. “Huge progress has been made in leaving the EU: the referendum has taken place; the manifestos of the main parties, respecting the result, were endorsed in the general election; Article 50 was triggered and the sensible decision was taken to allow legal EU migrants to stay post-Brexit. “Unsurprisingly, the prime minister has run into difficulties by making the mistake of prioritising a “deal” with the unelected EU representatives, which they have little incentive to accommodate, rather than a sensible implementation of Brexit in areas under the control of parliament. “99 percent of the benefits of leaving the EU, including the avoidance of vast financial contributions, the elimination of tariffs and the reacquisition of fishing rights, need no agreement from any third party. The prime minister can avoid most current problems by prioritising these areas.” Shares in JD Wetherspoon are currently trading up 5.10 percent at 1,307.00 (0922GMT).
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