TalkTalk loses 9,000 subscribers in Q2
In its latest trading update, TalkTalk (LSE:TALK) reported that despite revenues remaining on track, the broadband base remained 9,000 lower in the Q2.
Since the hack on the company’s data base in October 2015 that released the personal data of 160,000 people and sent pre-tax profits plummeting over 50% to £14m, TalkTalk have been working on reforms which featured a continuous cut to costs.
Revenues for the Telecommunication firm had slipped 0.4% alongside on-net revenues that declined 2% in the three months ending 30 June. There was however strong growth in corporate revenue from customers, which grew by 7.5%.
On-Net churn, which is the measure of customers who discontinue their subscription, stood at 1.36% compared with 1.5% seen the same time last year. In the aftermath of the hack, 100,000+ scrapped their subscriptions in the Q3 of 2015.
As the customer base on broadband fell 9,000 lower in the Q2, the TV customer base also took a hit as numbers fell by 23,000. There were signs of improvement however, as mobile customer volumes year-on-year increased by 48,000 as well as a 36,000 rise in fibre customers.
The company’s reforms are aimed at improving the services for existing customers as the group stated that it remains on track to deliver £35-40m worth of savings by the end of the fiscal year. Improvements are being made to fault diagnostics and a new simpler billing process to improve customer service.
TalkTalk reaffirmed shareholders that it expects revenue for the full year 2017 to ‘grow modestly’ with growth expected to be seen in its’ broadband base and business amounting to £320-360m.
In the immediate reaction to its’ update, the FTSE 250 company climbed 5% in the first hour growing up to 232.70p per share before declining later on to 225p.
A 2:09pm BST TalkTalk Telecom Group PLC traded at 219.30 -3.40 (-1.53%)
20/07/16
S&P lowers Deutsche credit ratings to negative
Standard and Poor’s this week announced that is has lowered its’ credit ratings for Deutsche Bank from stable to negative citing market conditions in the aftermath of the EU Referendum which may lead to further complications for the banks reforms.
It claimed that the German Banks restructuring and business model will be put at risk if operating conditions remain ‘adverse’ meaning that execution plans will not be made effectively.
S&P said:
“Although market conditions may recover somewhat from the weak first quarter of 2016, ultra-low interest rates and generally subdued client trading activity may persist for the foreseeable future. These pressures affect the entire sector but we believe they are particularly unhelpful for Deutsche Bank as it seeks to strengthen capital and maintain its franchise while fundamentally restructuring its business model and balance sheet.
Although it is not our current base-case scenario, we see a risk that the achievement of Deutsche Bank’s targets under Strategy 2020 may be challenged if operating conditions remain adverse.”
Despite Moody’s downgrade of Deutsche Bank’s long-term senior debt ratings down to BAA2 and long term deposit ratings to A3 in May, S&P stated that they will keep the banks BBB+ credit rating for its long term unsecured debt.
In early 2014 the bank first came under scrutiny for its oversized derivative exposure and high leverage as well as high profile moves within its top-end employment structure.
The bank has since outperformed the worst of predicted scenarios and started to implement a rigorous restructuring plan to secure its stability. However, first quarter earnings have missed targets, prompting new lowering of credit ratings.
Credit ratings guide investors and give clear analysis of the credit-worthiness and associated risks in an issuer’s ability to meet their commitments. The lower credit rating and continuing low interest rates are likely to impact the performance of Deutsche for the foreseeable future which have promoted credit agencies to lower their ratings.
Deutsche Bank is expected to stick to its plans announced in October which will see a reduction in jobs, suspension of dividend payments and exit from up to 10 countries in order to stabilise risk assets.
Shares in Deutsche Bank reduced by 3.25% in the later stages following the statement at €12.73
20/07/2016
Volkswagen earnings exceed expectations for Q2
Volkswagen (ETR:VW) has posted record earnings despite taking another hit over emissions-cheating scandal.
The operating profits for the first half of 2016 did decline by 12 percent to €5.78billion. However, this implies operating profits of €3.4billion in the second quarter, €300million higher than expected.
Revenues rose 3.7 percent to €98.7billion in the first half of the year compared to last year’s first half. Vehicle deliveries were up 5 percent and sales rose by 0.8 percent.
The company stated today that improvements in the European car market and the return of corporate fleet orders has helped earnings exceed expectations.
In September last year the group admitted to illegally installing software to deactivate pollution controls in 11 million diesel vehicles causing concerns of crippling settlements.
Volkswagen had initially put €16.2billion aside to undertake the technical fixes on vehicles involved and cover legal charges. Another €2.2billion will now be added for this purpose.
This decision came the same day as three US states filed new official law suits against the Group related to the emission scandal.
Shares
Investors however, were not moved by the renewed legal action against the firm. Following the earnings announcement last night, the markets were quick to react when trading opened this morning. Shares peaked at €124.1 at 9.20am GMT, up 6.7 percent to opening level. In the wake of the scandal, shares plummeted from €169.7 on September 16th down to €92.4 by October 2th. Volkswagen AG shares were trading at €123.4 at 12.05am GMT.UK unemployment down in May
Data on UK unemployment for May reflected positively on the UK labour market as new claimants came in at a record low and unemployment fell.
While the Claimant Count rate remained at 2.2%, the numbers of people claiming jobless benefits sunk from the April figure of 12,200 to only 400. The ILO unemployment rate has dropped by 0.1 percentage point to 4.9 percent, the lowest it has been in 11 years.
Surprisingly, growth in average earnings excluding bonuses has reduced slightly from 2.3 to 2.2 percent. The figure which includes earnings from bonuses has however increased by the expected 0.3 percentage points to 2.3 percent.
Although this data shows an expansion in the labour market which should reflect positively on the UK economy and the GBP, there has been little movement in the currency’s strength on basis as experts warn that data may not be representative of the new post-Brexit reality.
James Smith, Economist at ING, stated:
“Perhaps this [the results] is an indication that the uncertainty heading into the referendum didn’t affect hiring to the extent that had previously been assumed, although it is possible that this is simply reflected more heavily in June’s data released next month.” Smith also said that the Bank of England is similarly unlikely to give the figures much weight in their decision making on monetary policy actions in August. First post-Brexit figures on UK unemployment and earnings will not become public until September, meaning that effects in the market based on labour market information may delay until then.Italian banking shares drop further
Italian Banking shares dropped over the course of the day as the European Commission rules in favour of bail-ins.
The EU Court of Justice confirmed its legality citing the Slovenian 2013 bail in. The court stated that, “Burden-sharing by shareholders and subordinated creditors as a prerequisite for the authorisation, by the commission, of state aid to a bank with a shortfall is not contrary to EU law.”
The ruling confirms consensus post the Global Financial Crisis and ongoing European Banking Crisis that the tax-payer should not be the one bearing the majority of the costs of a banking bail-out.
The news has not been taken well by investors and Italian Banks.
They have been underperforming lately and therefore felt the biggest negative impact from the news. Most notably, Monte dei Paschi di Siena, the oldest bank in the world, fell over 7 percent. It managed to recover slight to close down 3.2 percent for the day. The bank has lost as much as 75 percent of their value over the course of this year. The Italian All-Share bank index had initially dropped 4.5 percent before a recovery.IMF cuts forecasts on global growth
The International Monetary Fund has once again cut its Global Growth Forecasts for 2016/17, due to the consensus that last month’s Brexit vote will impact negatively on economic growth around the world.
Global growth
New forecasts for the global economy project an expansion of 3.1 percent this year and 3.4 percent next year. These evaluations are both 0.1 percent lower than estimates published in the World Economic Outlook in April. The IMF’s World Economic Outlook Update, which revised the numbers, stated: “The Brexit vote implies a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences, especially in advanced European economies.” Maurice Obstfeld, IMF Chief Economist and Economic Counsellor, said: “Brexit has thrown a spanner in the works.”UK and Euro-Zone
The negative effects of Brexit are expected to effect the United Kingdom and European countries strongest. UK estimates have therefore seen the largest cuts. This year’s projected growth was lowered from 1.9 to 1.7 percent and projected growth for 2017 being reduced by a staggering 0.9 percent to 1.3 percent. For the Euro area the estimate has been raised by 0.1 percent for this year, to 1.6 percent but lowered 0.2 percent for 2017, to 1.4 percent.Japan
Japan is expected to suffer from the Brexit vote and economic uncertainty in Europe in the short term, as a stronger Yen will impede essential export growth. The IMF forecast on Japanese growth was cut by 0.2 percent to a low of 0.3 percent for the year 2016. For the coming year estimates have however been risen to a 0.1 percent expansion, amid April’s estimate of a reduction in the Japanese economy of 0.1 percen. The change was prompted by the postponement on the planned consumption tax increase.US
Estimates have also been lowered for the US. Expected growth levels for this year are now 0.2 percentage points lower than the 2.4 percent growth rate published in April, due to the lower-than-expected performance results in the first quarter. Levels for economic growth in the US have however remained unchanged at 2.5 percent for the coming year.China
China’s growth forecast rose by 0.1 percentage point to 6.6 percent for 2016 and remains at 6.2 percent for 2017. Since China, the world second largest economy, has both limited trade and financial relations to the United Kingdom, Brexit jitters are less likely to affect their growth but the IMF still stated that “Should growth in the European Union be affected significantly, the adverse effect on China could be material.”Developing countries
There has been considerable downwards revisions for low-income economies as well. Such were largely driven by Nigeria’s economic contraction and worsening economic outlook on South Africa, Angola and Gabon. Emerging countries on the other hand have performed well enough for substantial upwards adjustments to growth rates. Both Russia and Brazil growth forecasts have been adjusted upwards.Risks and important influences
In the further development of today’s report on the revisions, the IMF stressed that UK and European Union policy makers will play a key role in global economic developments. Further uncertainty over the economic future of Europe could hamper growth. It called upon both sides to create a “smooth and predictable transition to a new set of post-Brexit trading and financial relationships that as much as possible preserves gains from trade between the U.K. and the EU.” The IMF also went on to caution that there could be more negative outcomes than first expected. The full scale of all Brexit effects will unfold slowly over time and therefore the IMF is not ruling out that more negative shocks may arrive. Other risk areas mentioned in the new report highlight the prevailing problems in the European banking system. Such are currently most visible through Italian and Portuguese economic struggles as well as “protracted financial market turbulence and rising global risk aversion”. Geopolitical tensions and the growing threat of terrorism have also been mentioned as important factors to growth. This comes only days after another horrible terror attack in Nice, in which more than 80 people died, and a failed coup d’état in Turkey, which in its aftermath put tensions on Turkish-EU relations. In its’ policy recommendations the IMF advised particularly developed nations to make wider use of all policy tools available to them to tackle economic issues. It cautioned the heavy reliance on monetary policy alone.Goldman Sachs outperforms expectations in Q2 earnings
Although currently operating in the slowest period for the investment banking sector since 2009, Goldman Sachs managed to outperform expectations of earnings in their second quarter.
Earnings per share, expected at $3 per share, came in at $3.72. Revenue was as high as $7.93 billion, $450 million greater than expected. Net earnings stand at $1.82 billion for the quarter.
The Financial Times writes that the 88 percent rise in earnings per share in comparison to the first quarter stems from strong performance from undertaken mergers, acquisitions and debt-underwriting.
Goldman Sachs’ chairman and chief executive officer said: “Despite the uncertainty created by Brexit, we achieve solid results by continuing to serve our clients across our diversified franchise and by managing our business efficiently.”
Goldman’s earnings were in line with the positive trend set by other American Banks. JP Morgan easily beat estimations of earnings for the second quarter last week. Wells Fargo, Citi Group and BoA matched expectations. Revenues are still low across the sector, with all banks recording earnings lower than last years. However, they have started to recover from a low in the first quarter of this year. In the start of the year, particularly Goldman Sachs, was hit by exposure volatile assets. It remains to see if investor uncertainty post Brexit will have an impact on earnings in the coming quarter.Netflix price hike see’s shares fall 13%
Netflix, Inc. (NASDAQ:NFLX) today watched it’s shares plummet 13% as the company announced it had only added 1.7m subscribers worldwide in its Q2 update. Netflix had forecasted a growth of 2.5m members compared to the same time last year where they obtained 3.3m members.
As of June 2016, Netflix has 83m members worldwide, yet was only able to add 160,000 US subscribers. This was its lowest quarterly gain from the US market in almost 5 years. The company also added 1.7m new international customers compared to a forecast of 2.5m in April. International markets now make up 43% of Netflix’s overall subscribers.
The streaming service was also below sales targets ending Q2 with an operating income of $70m and a net income of $41m against a projected sum of $47m and $9m.
Netflix said:
“We are growing, but not as fast as we would like or have been. Disrupting a big market can be bumpy, but the opportunity ahead is as big as ever and we continue to improve every aspect of our business
Unfortunately, this year the regulatory climate in China for our service has become more challenging. Disney’s streaming service, launched in conjunction with Alibaba, was closed down, as was Apple’s movie offering. We continue to explore options and, in the meantime, have plenty of work to do in our newly opened markets”
Netflix said that the main reason for the drop in membership is due to a planned price hike that was announced in 2014. In May this year, customers were reminded that the new plans to increase the premium price of $7.99 by $2 will soon be imposed which led to a high wave of unsubscribes that ‘ticked up slightly and unexpectedly’
As a result of the higher prices, revenue for the Q2 rose 28% to $2.1bn yet this this could not prevent a fall in shareholders as the prospect of long term growth weakened. In response, Netflix said it expects to add 300,000 US subscribers alongside 2m new members oversea in the current quarter but acknowledges that Olympic coverage may hinder this process.
In reaction to the statement, Netflix shares fell 13% to $85.90 in after hours trading in the US.
At 9:15am EDT Netflix Inc traded at 85.33 – 13.49 (-13.67%)
19/07/2016
US housing market likely to perform well
Data on housing starts and building permits in the US for June is promising and bodes well for the growth of the US housing market.
The two figures published today by the US Consensus Bureau at 1.30pm GMT exceeded expected levels of growth.
The number of housing starts, which tracks the construction of new single-family homes, has risen from 1.135 to 1.189million. This figure exceeds expectations by 19.000 new homes. Building permits are also up from 1.138 to 1.153million.
The new stats give a positive outlook on US economic development and in particular the real estate industry.
This is likely to have a bullish effect on the USD. This movement is further supported by downwards pressure on the Euro after this morning’s ZEW indicators showed more pessimistic economic sentiment between European investors than expected.
Economic sentiment in the Euro Zone falls post Brexit
The ZEW indicator of European and German economic sentiment for July 2016 has fallen sharply to the previous month, clearly reflecting Post-Brexit uncertainty.
The centre for European Economic Research, located in Mannheim, Germany, published its survey data reflecting European institutional investor sentiment for this month early this morning. The survey indicators measure differences between shares of investors who are optimistic and shares of analysts who are pessimistic.
Experts expected indicators for this month to be lower the month before, due to the effects last month’s Brexit vote has had on the markets and investor confidence. However, the readings missed even most pessimistic expectations.