High Street preparing for frosty Christmas as consumer confidence slips
As Christmas draws closer and the High Street prepares for its busiest time of the year, the cold seems to have affected more than just the temperature: it’s also had a chilling effect on consumer confidence.
Figures from a variety of sources show weak consumer confidence heading into the Christmas season, with slow wage growth and uncertainty in the wake of Brexit contributing to the negativity on the High Street.
Non-food sales have taken a particular hit, with BRC-KPMG’s sales monitor showing that growth has fallen to the lowest level for five years. Shops selling both food and non-food items recorded a 2.2 percent slip in non-food sales and a 2.9 percent slide on a like-for-like basis. Over the last year, total non-food sales recorded a 2.1pc decline, the deepest drop since BRC-KPMG’s records began in 2012.
“October marked yet another reversal of fortunes for retailers, reinforcing just how volatile consumer spend has been,” said Paul Martin, head of retail at KPMG.
The latest figures from Marks and Spencer, released on Wednesday, seem to be in line with BRC-KPMG’s assessment. The group saw a further drop in clothing sales, vowing to speed up the closure of their non-performing clothing departments over the next year.
The British Retail Consortium also had similar figures for High Street trading, with like-for-like sales in October 1 percent lower than the same period last year. According to the BRC the key pre-Christmas trading period is off to a bad start, with credit card company also Barclaycard adding to the wealth of evidence that supports this view. The bank recorded consumer spending growth of 2.4 percent for October, below the current 3 percent inflation rate as households cut back on “nice-to-have” goods.
The car market has also taken a hit over the past couple of months, with figures from the Society of Motor Manufacturers and Traders showing the market is on course for its first annual decline since 2001. It is also set to weaken further in 2018, as the group recorded the seventh consecutive month of falling car sales.
With pre-Christmas figures like these, it seems as though the High Street’s winter collections may need to prepare for a frosty reception.
Marks and Spencer to cut food store openings as weak clothing sales weigh
Marks and Spencer shares fell at market open on Wednesday morning, after the company’s pre-tax profit sunk over 5 percent to £219 million in the six months to September.
A further drop in clothing sales led the profit plunge, with the company vowing to speed up the closure of its underperforming clothing departments. The weak figures also led CEO Steve Rowe to announce a slowdown in the opening of its Simply Food stores, with planned openings cut from 80 to 90 in 2018.
We have made good progress in remedying the immediate and burning issues at M&S,” said chief executive Steve Rowe.
“The business still has many structural issues to tackle … in the context of a very challenging retail and consumer environment. Today we are accelerating our plans to build a business with sustainable, profitable growth, making M&S special again.”
Other figures released by the group on Wednesday were more positive, with group revenue for the six months to 30 September grew 2.6 per cent to £5.1 billion. Earnings per share jumped to 5.2p from 1p last year, while the interim dividend was kept flat at 6.8p.
Shares in Marks and Spencers moved upwards after their initial plunge, currently trading up 0.82 percent at 330.50 (1020GMT).
House prices increasing despite plummeting confidence
House prices across the UK are increasing at their fastest rate since February, according to mortgage lender Halifax.
In the year to October prices rose by 4.5 percent, up from a previous level of 4 percent in September. The latest figure puts the average UK house price at a record high of £225,826, with Halifax saying prices were likely to continue to stay at this level, supported by cheap mortgages and high employment rates.
However according to the lender’s figures, consumer confidence dropped over the same period to hit its lowest level since 2012.
Halifax’s figures showing impressive house price growth have contrasted with those of other similar lenders, many of which predict a much slower rate of growth. Nationwide put quarter-on-quarter growth at just 0.8 percent, compared to Halifax’s figure of 2.3 percent.
G4S shares plunge on growth forecast downgrade
G4S (LON:GFS) became the biggest faller on the FTSE 100 on Tuesday, after weak performance in the Middle East led the group to slash its growth forecast for the year.
The security company now expects revenue growth of between 3 and 4 percent in 2017, down significantly from a previous expectation of between 4 and 6 percent. Disappointing performance in the Middle East and India contributed to the downgrade, with G4S CEO Ashley Almanza saying:
“Trading for the nine months was in line with expectations. Organic revenue growth was 4.4 percent, with all regions growing apart from the Middle East and India region. Organic revenue growth excluding Middle East and India was 6.1 percent for the first nine months.”
The group said it remains focused on cash flow and are on track for the Group’s net debt to EBITDA ratio to be 2.5x or lower by the end of 2017.
Shares in the company plunged on the news and are currently trading down 6.69 percent at 260.90.
Germany Dax 30 At All Time Highs – Where Next?
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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
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
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?
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 HintonJust 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.“