Bank of England deliver rate hike for first time in 10 years

Miranda Wadham
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Bank of England deliver rate hike for first time in 10 years

The Bank of England has raised interest rates for the first time in over 10 years, after the Monetary Policy Committee said falling unemployment meant there was “limited slack” in the economy.

The official bank rate has been lifted from 0.25 percent to 0.5 percent, the first time that rates have been lifted since before the financial crisis.

Seven out of the nine members voted in favour of higher rates., but the committee reiterated that future increases in rates would be at “a gradual pace and to a limited extent”.

The financial markets are expecting the Bank of England to follow a similar strategy to that of the US Federal Reserve, with several more rate hikes to come over the next three years.

The Bank of England is currently facing a challenge from inflation, which despite governor Mark Carney’s target level of 2 percent hit 3 percent in September. Wage growth also remains weak, at just 2.1 percent. The rise in interest rates is likely to have a positive impact on savers, with Vince Smith-Hughes, retirement expert at Prudential, commenting: “Rising interest rates will be welcomed by retired people who often have a large proportion of their savings in deposit accounts. Rising inflation has eroded their retirement income as deposit accounts fail to keep pace with inflation. The rise in interest rates will hopefully see better returns from savings accounts. Using the right wrappers to minimise tax is also important.”

Centimin shares fall despite reporting record levels of production in Q3

Miranda Wadham
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0
Centimin shares fall despite reporting record levels of production in Q3
Gold mining group Centamin reported record levels of production on Thursday, maintaining its full year guidance for 2017. Centamin produced 156,533 ounces of gold in its fiscal third quarter on Thursday, 26 percent higher than production in the previous quarter and 5 percent higher than the same period last year. It maintained its full-year guidance for 2017 at 540,000 ounces, with a $580 per ounce cash cost and USD790 per ounce all-in sustaining cost. Third quarter EBITDA of $103.6 million was up 57 percent from the second quarter, boosted by both the price of gold and an increase in sales. Quarterly throughput was 3.0 million tonnes from the Sukari process plant, which enjoyed an “excellent quarter”. “Open pit mining rates reached another record, with ore production from high grade areas allowing a significant increase in open pit plant feed grade”, said Chief Executive Officer Andrew Pardey, adding that “the underground operations delivered another quarter of good grades at an annualised 1.2 million tonne rate and the process plant again achieved a quarterly throughput of approximately 3 million tonnes.” However, investors failed to be impressed by the results, with leading Centamin’s share price to drop 3.71 percent in morning trading.

Shell earnings boosted by uptick in oil prices

Miranda Wadham
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0
Shell earnings boosted by uptick in oil prices
Oil giant Shell (LON:RDSA) saw its share price rise on Thursday, as the oil market’s recovery led earnings to surpass analysts’ expectations. Shell reported $4.1 billion in earnings for the last quarter on a current cost of supply basis, well above analyst forecasts of $3.6b billion. The figure is almost 50 percent higher than in the same quarter last year, with CEO Ben Van Beurden said the group’s oil and gas production business generated almost half of its $10 billion cash flow from operations at an average price of $52 a barrel.
The group’s performance has benefitted significantly from an increase in the price of oil, with the effects of OPEC’s oil output limits beginning to filter through to the market. Oil prices have edged up towards $60 a barrel in recent weeks, about 13 percent higher than a year ago, raising expectations for the oil industry’s full-year results.
Ben van Beurden, the group’s chief executive, said the “competitive performance” provided “further evidence of Shell’s growing momentum, and strengthens my firm belief that our strategy is working”. Shell shares are currently trading at a price of 2,385.00, up 1.08 percent on the day (1129GMT).

Is the FTSE 100 overvalued?

Raymond Jones
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0
Is the FTSE 100 overvalued?
The FTSE 100 has posted sharp gains over past 18 months and has broken to fresh records on numerous occasions. As the market currently resides with touching distance of recent highs, we ask is the FTSE 100 overvalued?

Valuation

When evaluating the price levels of stocks one of the most commonly used metrics are price-to-earnings (PE) ratios. There are several variations of PE ratios and they value a stock or share index by dividing earnings of equity by their current price or market capitilisation. It can be used to predict the returns investors will receive on stocks; a higher PE ratio would suggest that stocks are overvalued and lower PE suggests stocks are cheap. This logic is then applied to stock markets as a whole as the current value of the share index is divided by total earnings. PE Ratios are the most widely used metric of valuations and it is important to understand the different variations to help predict future returns.

CAPE Ratio

Shiller’s cyclically adjusted price-to-earnings (CAPE) ratio uses a ten-year period that adjusts earnings according to inflation. In some quarters it is considered a superior predictor to the core PE ratio as it avoids the economic cycle skewing the data. In regard to the FTSE 100, the PE ratio, as of 30 September, was 25.6 whereas the CAPE ratio was 15.7. The CAPE ratio is trending towards its historical mean, as is assumed it will continually do over time, of 16, however the PE ratio is significantly above its historical mean of 15. Similarly the FTSE CAPE ratio is considerably lower than in other large countries, such as the US and Germany, however, the PE is higher than in these countries.

Is the FTSE 100 Overvalued?

So, why is there this disparity? Is the FTSE 100 currently over or undervalued? Part of the answer may be revealed when looking at when the PE ratio of the FTSE began to climbed. In the six months between the end of 2015 and July 2016 this ratio more than doubled, going from 17.18 to 36.49. This may have been caused by how highly weighted commodities were on the FTSE at this time. At this time commodity prices began to plummet and as a result, earnings also dropped sharply. Prime examples of this are BP and Shell who began posting dramatically reduced earnings – and large losses in the case of BP – as their share price either continued as they were and began to climb again. The price of the FTSE has continued to climb since this point as well. This is because of historically low interest rates has led to investors further turning toward trading in stocks in order to get higher returns. Since the huge spike in the trailing PE ratio in 2016 it has been slowly dropping consistently quarter on quarter, likely the value of the pound dropping 16% up to July 2017, which has caused earnings for the FTSE to increase. This is likely why the PE ratio is seemingly reverting to mean and this should continue to occur. This process will continue in one of two ways, either earnings continue to rise or stock prices takes significant drop off. Considering the fall in the pound has led to an increase in earnings as many of the FTSE 100 companies are multinationals, so earnings abroad are inflated when converted to pounds, this suggests prices are too high. As a consequence, unless the pound carries on dropping or companies improve earnings substantially, the PE ratio will remain above long terms averages, therefore it is likely a drop in price will facilitate the drop in the PE ratio, leading to a conclusion that the FTSE 100 is currently overvalued. by Will Hinton

Just Eat continues strong expansion as revenue rises 47%

Raymond Jones
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0
Just Eat continues strong expansion as revenue rises 47%
Takeaway app Just Eat has posted another strong set of results in which revenue increased by 47% and a 29% increase in orders. Just Eat set out to develop their technology and marketing earlier this year and the results have reflected the greater engagement of customers throughout the period. The company pointed to success internationally with a 43% increase in overseas orders to 16.9 million. Just Eat also noted that after three years as a listed company, it will now proceed with financial updates on a half-yearly basis.

CEO Peter Plumb said of the results:

“The Just Eat team has once again delivered another period of strong growth. As I get to know the company, it is great to see the UK business in good health and positive momentum across our international markets, particularly in Canada where SkipTheDishes’ delivery expertise and relentless focus on customer service are driving excellent results. We will continue to invest for growth in technology, marketing and great people.“

Weir Group sinks as full year guidance is slashed

Raymond Jones
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0
Weir Group sinks as full year guidance is slashed
Weir Group shares sunk on Tuesday following the release of a trading statement in which the company said operating profits were expected to be ‘slightly lower’ than previously thought. Shares in Weir Group were down over 6% in early trade. The company attributed the weaker outlook to the phasing of mineral projects and one-off configuration costs. CEO Jon Stanton, commented in the update:

“In 2017 we continue to build on our leadership positions in rapidly improving main markets whilst investing to maximise the significant opportunities ahead of us. “As the North American onshore oil and gas industry continues to demonstrate its increased relevance as a source of global supply, our Oil & Gas business is fully leveraging its market leadership position in support of higher activity levels among customers. While international markets remained challenging the division has accelerated in 2017 as we expected and is well placed to continue to fully capture future opportunities. “In Minerals our brownfield solutions delivered good order growth with an increasing pipeline of future opportunities. Profits will be slightly lower than previously indicated due to project phasing, incremental investment in growth and one-off plant reconfiguration as we ensure the business is well set to benefit from increased momentum in 2018 and beyond.”

“At a group level, we anticipate strong growth in full year constant currency revenues and profits. Minerals profits are expected to be slightly lower than previously indicated while expectations for Oil & Gas and Flow Control are unchanged.”

BP shares rise following share buyback announcement

Raymond Jones
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0
BP shares rise following share buyback announcement
BP reported Q3 earnings on Tuesday morning and comfortably beat analysts expectations giving the board confidence to announce a share buyback. BP’s net profit for the quarter was $1.9 billion against analysts expectations of $1.6 billion. The increase in profit represented a near 100% increases in earnings from a year earlier when the company suffered significant impairment charges. The Oil major said a dividend of 10 cent per share would be paid in December in line with payments over the past few years. There have been concerns that BPs cashflow could put pressure on the dividend but asset sales and strength in the midstream has helped their cash position. BP recorded an average price $49 per barrel of oil in the quarter highlighting the cost efficiencies the company has implemented to help the bottom line in a period of low oil prices. Bob Dudley, BP CEO commented on the results: “We are steadily building a track record of delivering on our plans and growing across our businesses. This quarter, three new Upstream projects and the highest Downstream earnings in five years, underpinned by reliable operations and disciplined spending, have generated healthy earnings and cash flow. There is still room for further improvement and we will keep striving to increase sustainable free cash flow and distributions to shareholders.”

RBS swing into profit, financial position improves

Raymond Jones
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2,579
RBS swing into profit, financial position improves

Royal Bank of Scotland (LON:RBS) have continued their already positive year with a third successive quarter of profit. For the third quarter RBS made a profit of £392 million, pushing their profit for the year up to £1.33 billion.

Some quarters have suggested this leaves RBS in a strong position to finish the full-year in profit for the first time since their state funded bailout in 2008. RBS themselves have however expressed caution as they are yet to conclude a number of litigation cases in the US, as well as being under a fresh investigation by the Financial Conduct Authority over mistreatment of small business customers. The firm have already made provisions for these cases, whilst also warning that there may be the need for further substantial provisions. RBS has seen their net interest margin decline for both the third quarter and first nine months of the year, compared to the year previous. In the third quarter net interest margin fell five basis points to 2.12% and fell 2 basis points for the first nine months to 2.16% One off payments for PPI claims was £115 million for the quarter, leaving them with £979 million of provisions. This is an increase in payments from £81 million in Q2 2017, which was expected as new FCA media campaigns has had a significant impact on the number of claims. RBS’ long term target for Common Equity Tier 1 ratio is 13%, managing to be above this target for the quarter as it increased by 70 basis points to 15.5%. This strong performance reflected “continued RWA (Risk-Weighted Asset) reduction, the attributable profit and a reduction in the prudential valuation capital deduction, broadly offsetting the Capital Resolution losses taken in the quarter”. The group, that also owns Natwest, stated firm progress in all four of the target areas they have identified. Income has grown 7.5% for the year to date, operating expenses has been reduced by £708 million, capital usage has been reduced and they are moving toward resolving legacy issues.  

RBS shares have remained close to their opening price, increasing 0.4% to 282p at the time of writing, despite early strong performance.

Shire Pharmaceutical gains approval from European Commission

Raymond Jones
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1
Shire Pharmaceutical gains approval from European Commission

The biotechnology company Shire PLC (LON:SHP) has had a label extension approved by the European Commission. The label extension grants a new indication for FIRAZYR, allowing it to be used by adolescents and children aged two and older.

FIRAZYR is used to treat people with hereditary angioedema (HAE), which is a rare genetic diseases that specifically causes attacks of localised oedema. HAE is thought to affect one in 10,000-50,000 people worldwide.

Despite the label extension of FIRAZYR Shire have seen their share price drop 2% to 3517p. This is in anticipation of Shire delivering their third quarter results for 2017 tomorrow (October 27).

Analysts expect revenue for the rare disease specialist to rise 8% and earnings per share to increases by 15% on the previous year. Shire drugs Cinryze and Lialda may however perform worse than expected. Cinryze has suffered from a supply shortage and Lialda has been experiencing competition from Zydus.

How might the Autumn Budget affect AIM companies?

Miranda Wadham
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0
How might the Autumn Budget affect AIM companies?
Chancellor Philip Hammond is set to reveal his Autumn Budget next month, with all eyes on his announcements as the government struggles to deal with Brexit negotiations. A freeze on tuition fees and a £250 million spend on Brexit are rumoured to form a major part of the Budget – but what about the finance sector? According to Helena Kanczula, Corporate Tax Director at Blick Rothenberg, there could be a large impact on AIM companies.
Some changes may be on the cards for the Enterprise Investment Scheme, including speculation that the relief available for investors through the scheme may be restricted. Investments in AIM-listed groups will often benefit from EIS relief where the necessary conditions are met, and this acts as a significant incentive to wealthy investors who might wish to invest in this market; therefore, the withdrawal or reduction of relief could therefore make it harder for smaller AIM-listed groups to raise the finance necessary for growth and job creation. Another area that may affect AIM companies in particular is a change to corporation tax. For AIM-listed groups, the costs and resource involved with tax compliance represents a significant burden. “Until recently many AIM-listed groups had a dedicated HMRC relationship manager”, said Kanczula, “but the withdrawal of this facility for all but the largest groups has increased compliance costs for many companies. The reintroduction of an interface between businesses and HMRC would be greatly welcomed by AIM-listed groups and their advisors”. The Apprenticeship Levy has also had a significant impact on larger AIM-listed groups. Evidence suggests that many companies in the AIM market are unable to access the funds necessary to train apprentices and so the Levy merely represents an additional tax burden. “More flexibility around the structure of training carried out by apprentices would be welcomed as many groups are keen to take on apprentices but operate in industries that do not require the level of structured training currently necessary to qualify”, Kanczula said.
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