The FTSE 100 finished Thursday higher after the Bank of England raised rates by 50bps to 4% and signalled a milder UK recession than first thought.

The Bank of England also amended their inflation forecast to just 4% by the end of the year.

“The Bank is now projecting that inflation will fall to 4% by the end of the year, which will be music to the ears of the PM, who has promised a halving in the inflation rate – though the Bank might legitimately be a little peeved the government is trying to claim credit for their efforts,” said Laith Khalaf, head of investment analysis at AJ Bell.

“Inflation is now forecast to fall to 0.4% in 2026, which begs the question why the Bank is continuing to raise interest rates.”

The Bank of England was joined by the ECB in hiking 50bps on Thursday. However, the biggest story in town was the US Federal Reserve’s more conservative 25bps rate hike last night.

The slowing pace of US rate hikes and generally dovish comments from the Federal Reserve Chair proved ample to support global risk assets and the Bank of England’s instalment helped boost momentum in equity markets.

The Federal Reserve said that although rates would continue to rise in 2023, it would be at a slower pace than 2022. Bond yields fell across major economies as a result – this is welcome news for equity investors.

The Fed Chair really fired up equity bulls when as he said the “disinflationary process has started”, opening the doors for easier monetary policy in the future.

The FTSE 100 touched 7,840 in mid afternoon trade before falling back to 7,820 at the close. US stocks stormed ahead with the S&P 500 jumping 1.5% and the NASDAQ surging 3%.

Shell record profits

Shell provided substantial support for the index on Thursday following the confirmation of record profits in 2022 due to higher energy prices. Shell earnings hit $40bn in 2022, although some areas of the business started to slow down in the 4th quarter.

Following a sharp rally in Facebook-owner Meta last night and the NASDAQ today, Ocado once more demonstrated its tech stock attributes as it jumped 11% in a broad global tech rally.

The tech-heavy Scottish Mortgage Trust was also among the top risers, gaining 6%. The trust’s largest holdings include Tesla, Tencent, and Amazon. Moderna is the trust’s top holding, accounting for 10% of the portfolio.

JD Sports also gained 11% meaning the retailer has nearly doubled from lows at the end of 2022. The prospect of lower inflation could mean increased discretionary spending on JD’s £160 trainers.

Well now we have been told.

Superdry (LON:SDRY) Founder and Chief Executive Julian Dunkerton has answered press rumours about the possibility that he will look to take his iconic brand private.

The group, which had problems last year with pressures on its refinancing of a £70m facility, coupled with operating losses, recently declared that it enjoyed good Christmas retail sales, but a lower take on its wholesaling side.

City press headlines suggested that Dunkerton, with others, was considering taking the group private.

However, he has now confirmed that “there were no plans to do this at the moment” but he reserves the right to make or participate in an offer for Superdry within the next six months.

But he may do so if another party made an offer or he had agreement with the Superdry Board.

Analyst Opinion – long-term value

Analyst Wayne Brown at Liberum Capital recently stated that the group’s shares are cheap and offer significant long-term value. 

He sees the group’s profits recovering from a current year (to end May) loss of some £6m, bouncing up to a profit of £9m on increased sales of £645m. 

For 2025 his estimates are for £690m sales and £23.5m profits, worth 21.8p per share in earnings.

He has maintained his Buy rating on the shares, with a 500p Target Price.

Conclusion – options kept open

With its shares trading at around 118p, the group is currently capitalised at about £97m.

That sounds like he is definitely keeping his options open!

Shell recorded a $40bn profit in 2022 as higher oil and gas prices caused by Russian aggression in Ukraine drove profits to the highest level for 115 years.

Adjusted earnings for 2022 rose to $39.9bn from $19.2bn in 2021 as earnings across their integrated gas, upstream, and chemical and products business units soared.

Fourth quarter results showed the impact of higher oil and gas prices was heavily weighted to the summer months and earnings from their upstream production activities fell sharply in the last quarter of the year. Adjusted earnings for the fourth quarter fell to $3bn from $5.9bn in the third quarter as energy prices fell.

Integrated gas was the standout performer in the fourth quarter with adjusted earnings rising 157% to $5.9bn.

Shell shares were 1.9% higher at 1.9% at the time of writing.

“Despite lower oil and gas prices over the final quarter of 2022, Shell’s adjusted earnings rose to $9.8m from $9.4m in the previous quarter, with higher LNG trading and optimisation results,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

“Total earnings for 2022 of $39.9m came in ahead of analyst expectations. This gave Shell the confidence to increase its final dividend by 15% and earmark $4bn for share buyback in the first quarter of 2023.”

Nathan also touched on how Shell is increasingly banging their renewables drum. Shell’s renewables unit recorded $1.7bn adjusted earnings in 2022 and marked a swing to profits from a $243m loss in 2021. Renewables earnings is still relatively insignificant compared to Shell’s overall profit, but the profit certainly signals Shell’s future intentions.

“Shell was keen to point out its expansion in renewables, such as the recent acquisition of biogas producer Nature Energy and its JV with Ecowende which has won a bid to develop a 760 MW offshore wind farm in the Netherlands. This comes against the backdrop of a complaint to the SEC by activist Group Global Witness, that Shell is overplaying its investments in renewables,” Nathan said.

BT shares started Thursday trade on the back foot following a disappointing trading update for the nine months to end 31st December.

The telecoms company saw their revenue fall as a result of inflationary pressures, lower equipment sales and the removal of BT Sport revenue.

Revenue declined 1% while profit before tax for the period sank 15%. Profit before tax was heavily impacted by deprecation costs which offset a jump in EBITDA.

The lower profit was recorded despite efforts to lower costs across the business. The group plan to save £3bn in annualised costs by the end of 2025.

“Cost cuts remain the aim of the game as BT battles with higher costs from a host of angles. To be fair, management look to be doing a decent job and synergies from the newly created BT Business should help make the £3bn cost saving target a reality – but there’s no avoiding the fact cash flow is under pressure,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

Analysts also pointed out the challenging nature of BT’s sector. There is increasing competition and their top line growth is kept in check by customer’s ability to switch providers and pressure from regulators. This creates a model that is heavily reliant on reducing costs to boost profits.

“Telecoms is a mighty challenging sector. There’s little to differentiate providers and regulators and consumers are always demanding more for less. So while BT is pushing through price increases, it must be careful not to push too hard,” said Charlie Huggins, Head of Equities at Wealth Club.

“Then there are the huge cash demands – BT will spend around £5 billion this year alone to maintain and upgrade its infrastructure, and it will have to keep the spending taps open to remain competitive. If inflation remains elevated, these costs are only likely to increase.”

BT shares were trading down 0.7% at 122p at the time of writing, after recovering from lower levels earlier in the session.

The FTSE 100 rose on Wednesday after a a strong session in the US overnight driven by central bank expectations.

The FTSE 100 had edged up 0.2% to 7,786 at the time of writing.

Nervousness earlier in the week has been replaced by mild optimism the Federal Reserve and Bank of England would soon start to slow the pace of their rates hikes, and could even cut rates towards the end of the year.

The prospect of easier monetary policy buoyed US stocks overnight where the S&P 500 closed up over 1%.

“The FTSE 100 moved higher on Wednesday morning, with today’s trading session in London sandwiched by strong gains on Wall Street overnight and the US Federal Reserve’s decision on interest rates later,” said AJ Bell investment director Russ Mould.

“A lot is riding on the Fed dialling back the pace of rate hikes to 25 basis points and there will also be plenty of attention on the surrounding messaging from chair Jerome Powell and his colleagues. Helping the market’s mood on Tuesday was data that revealed slowing US wage growth, another signal that inflationary pressures have peaked.”

GSK

GSK, formerly known as GlaxoSmithKline, dipped slightly on Wednesday after the pharma giant reported strong sales growth for 2022. GSK shares had been bid up over the last week and the numbers proved to be lacking the punch to keep the rally going through the trend line in a downtrend started in December.

“GSK, or Glaxo as market greybeards still know it as, reported underlying sales growth of 13% for the year just ended. Currency moves pushed the reported numbers up even higher,” said Steve Clayton, head of equity funds at Hargreaves Lansdown.

“Growth was driven by specialty medicines, up 29% and HIV treatments, 12% higher. The rest of the portfolio saw strong gains also from oncology and immuno-inflammation treatments.  Blockbuster shingles vaccine, Shingrix was the star of the show, delivering £3bn of sales, up 72%. The group currently has a pipeline of 69 treatments, 19 of which are in late-stage trials. Underlying earnings jumped by 18% to 110.8p.”

Entain

Entain was among the best performers on Wednesday following a record fourth quarter helped by growth in their US business and the World Cup.

The company also completed a number of European acquisitions which promise top line growth in 2022.

The news that in the last few weeks Made Tech Group (LON:MTEC) has been awarded a massive £27m of new contracts by the Government, emphasises its potential to create sizeable profits in the coming year.

The £40m capitalised group is a specialist provider of digital, data and technology services to the UK public sector, enabling central government, healthcare and local government organisations to digitally transform.

The new contract wins are with the DVLA for £14m, the Department for Levelling Up, Housing and Communities for £8m and finally with the Cabinet Office for £5m.

Interim results due in next few weeks

Ahead of announcing its interims on Thursday 23 February the group issued a Trading Update declaring a strong first-half performance for the six months to end November 2022.

Group revenue was up 76% at £20.6m (£11.7m) while adjusted EBITDA was £0.5m (£1.2m), due to delayed bid submissions and ongoing project work.

The group had a net cash position of £9m, while its contracted order backlog at the period end was 53% up at a record £47.8m (£31.3m).

Going forward the group’s Board has confidence in its growth prospects, having right-sized its headcount, having reduced contractor numbers by 10% and improved cost controls.

CEO Rory MacDonald stated that:

 “We are delighted to have delivered another period of strong growth. It is pleasing to note that our contract sizes continue to grow as we become more established in the market. 

These wins, together with the new Home Office contract announced in November 2022, demonstrate Made Tech’s ability to deliver digital technology successfully, and highlight the strength of our reputation in this growing market. 

As a result, the Group remains on track to meet market expectations for the full year and deliver value to shareholders over the long term.”

Analyst Opinion – the most important indicators are flashing green

Analysts at Singer Capital Markets rate the shares as a Buy, looking for 76p a share.

Their estimates for the current year to end May are for £43.0m (£29.3m) revenues, with adjusted pre-tax profits rising to £3.4m (£2.3m), generating 3.4p (2.3p) per share of earnings.

For the next year they go for £50.0m sales, £4.1m profits and 2.6p earnings.

Conclusion – 40p for 2023 an easy objective

With its shares now trading around the 27p price level they are offering attractive upside, with 40p being an easy 2023 objective.