Peel Hunt raises £112mln in IPO ahead AIM listing

Liam Roche
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Peel Hunt raises £112mln in IPO ahead AIM listing

Peel Hunt valued at £280m

Peel Hunt, the London-based broker, confirmed it has raised £112m ahead of its debut on the AIM market.

Of the money raised, £40m will be invested back into the business in order to aid its continued growth.

The rest will be kept by shareholders who are selling, seemingly to deal with tax related issues as a result of the corporate restructuring.

Peel Hunt‘s shares were placed with investors at 228p a piece, meaning the company’s total valuation is £280m.

Chief executive Steve Fine commented: “We have been delighted with the positive reception to our IPO, with strong support from institutional investors, as well as retail investors who were able to participate through intermediaries using our REX technology platform.”

“This is testament to the high-quality business we have built over the past decade, which puts us in prime position to take advantage of numerous opportunities ahead and continue our strong growth momentum.”

Evergrande misses deadline as concerns rise

Liam Roche
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Evergrande misses deadline as concerns rise

The Chinese government is yet to comment

Evergrande, the second-largest property developer in China, has moved closer to the possibility of defaulting on Friday as it failed to meet a payment deadline.

This signals that the company is in a deeply troubling situation and investors are now fearful.

Evergrande owes more than $300bn and appears to have run out of cash. Investors are now concerned about the consequences on the Chinese financial system and around the world.

A specific deadline where Evergrande was supposed to pay $83.5m in bond interest has been and gone, with little comment from the developer.

Bondholders have received no communication nor have they been paid, Reuters reported.

Evergrande will now enter into a grace period of 30 days. If it fails to make payment then it will default.

“These are periods of eerie silence as no-one wants to take massive risks at this stage,” said Howe Chung Wan, head of Asia fixed income at Principal Global Investors in Singapore.

“There’s no precedent to this at the size of Evergrande … we have to see in the next ten days or so, before China goes into holiday, how this is going to play out.”

Central banks in China have made efforts to stimulate the banking system. However, there has been no comment by officials, or state media, regarding an update on the situation.

Gold dips but broad upward trend remains

Liam Roche
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Gold dips but broad upward trend remains

Gold historically a safe haven in times of inflation and uncertainty

Gold dipped on Thursday as the Fed gave an indication it could rise interest rates, while positive news emerged regarding Evergrande in China.

Spot gold is down to $1,751.03 at the time of writing, as are US gold futures.

The dollar is down by 0.52% against a basket of currencies as Jerome Powell hinted that tapering may soon be on the menu.

“Until something more concrete happens in terms of direction for the dollar, gold will be impacted more by the level of risk appetite or risk aversion,” said Powell.

Generally speaking, a weaker dollar is good for gold’s appeal, as it is considered a hedge against inflation and political instability.

“Higher rates usually do impact gold negatively, (but)investors will almost have a foot in gold’s door as a precaution given the continuing bubble in the equities and bond market,” said Vincent Tie, sales manager at Singapore dealer, Silver Bullion.

However, while gold has not been having the best of times over the past few months, over a longer period it has been on an upwards trajectory.

Gold could face pressure in the short-term, said domestic brokerage Geojit, who thinks major rallies are seen only a close above $1815.

Tesco issues warning over panic buying during Christmas period

Liam Roche
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Tesco issues warning over panic buying during Christmas period

Tesco struggling to hire HGV drivers despite improving pay

Tesco has issued a warning to the government, suggesting that there could be shortages across the country leading to empty shelves as a result of a shortage in HGV drivers.

“Our concern is that the pictures of empty shelves will get 10 times worse by Christmas and then we’ll get panic buying,” Andrew Woolfenden, Tesco’s head of distribution and fulfilment in the UK, told a Cabinet Office meeting.

This is despite Tesco improving its remuneration packages for drivers, offering bonuses worth £1,000.

The FTSE 100 company is facing a surplus of 800 drivers, according to Woolfenden, confirming that Tesco had struggled to hire new drivers over recent months.

“There won’t be the same level of choice as there has been in the past,” the Co-op chief executive, Steve Murrells, said, as he warned of oncoming price increases and supply issues.

Murrells believes shoppers will be able to get what they need, but said that some product lines would be limited.

A Tesco spokesperson added: “We have good availability, with deliveries arriving at our stores and distribution centres across the UK every day. While the industry-wide shortage of HGV drivers has led to some distribution challenges, we’re working hard to address these and to plan for the months ahead, so that customers can get everything they need.”

The Tesco share price is down by 0.41% on Thursday.

Could food prices be the cause of inflation?

Liam Roche
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Could food prices be the cause of inflation?

Food prices concerning for consumers, investors and central bankers

There is an air of concern both on the part of consumers, investors and central banks about the possibility of oncoming inflation and supply chain issues.

The Bank of England on Thursday suggested it is worried about the prospect of additional inflation, predicted that prices will climb above 4% over the coming months.

A specific area of concern for all parties is the cost of food.

“The United Nations’ FAO Food Price Index therefore requires attention,” says AJ Bell Investment Director Russ Mould.

The benchmark, which spans key agricultural materials such as cereals, vegetable oils, meat, dairy products and sugar, is up 33% year-on-year. That is the fastest rate since 2011.

Source: Food and Agricultural Organisation (FAO) of the United Nations

On investors’ minds now will be whether or not food prices will be the cause of sustained inflation and if this will impact consumers’ spending levels.

“Central bankers will be watching, in case inflation forces their hand and requires a tightening of monetary policy in the form of a tapering of Quantitative Easing and higher interest rates,” says Mould.

“No doubt central bankers, to defend their view that the current spike in inflation is ‘transitory,’ will be keen to point out some of the factors involved in the food price surge. These could range from include global shipping and port bottlenecks, to a shortage of truck drivers to bad weather in countries such as Brazil, where drought and then unseasonal frost is badly affecting supply of oranges and coffee to the global market.”

In many cases, the best solution for high prices is high prices. It can choke off demand or encourage additional supply. “The latter may happen in time, if the weather helps, but it is not easy for people to stop eating, as they need their daily calorific intake,” says Mould.

Bank of England warns of winter inflation but will not raise rates just yet

Liam Roche
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Bank of England warns of winter inflation but will not raise rates just yet

BoE says inflation could climb above 4% in coming months

The Bank of England has suggested it is worried about the prospect of additional inflation.

The UK central bank today predicted that prices will climb above 4% over the coming months, but added that increased rates are not yet a priority as they would come down in 2022.

The Monetary Policy Committee voted unanimously to keep its rate at 0.1% this month, adding that it was content with the economy’s recovery from the pandemic to the point it will now weigh up the possibility of ending emergency interest levels.

However, the committee suggested that rates will not be raised immediately.

On the other hand, it said the recent information on possible inflation had “strengthened [the] case” for “modest tightening of monetary policy”.

Hinesh Patel, portfolio manager at Quilter Investors, commented: “The Bank of England, in its policy decision today, clearly expects the inflation rate to be higher than previously feared. While they reiterate it will be transitory, it will no doubt be of major concern.”

“Ultimately what is flowing through the system right now is “bad inflation”, that is price rises are hitting the most vulnerable households, alongside the impacts of furlough on unemployment uncertainty. This uncertainty is likely to continue with the end of the furlough scheme coinciding with the structural shift in skillsets in the employment market.”

Patel has little faith that any of the issues can be solved by monetary policy and as such the BoE should be well within its rights to start tightening its stimulus policy. “Unfortunately if it does not it risks doing even more damage on the social divide through ever increasing wealth inequality,” he said.

“With the ECB and Federal Reserve both announcing that they intend to begin the tapering and unwind their financial support, there is a risk that not acting in the same timeline will force UK sterling down even further – exacerbating the inflationary shock further with even higher import prices.”

What does falling life expectancy rates mean for state pensions?

Liam Roche
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What does falling life expectancy rates mean for state pensions?

Life expectancy at birth fell bit different rates across the regions of the UK

Average life expectancy at birth dropped by 7.8 weeks in England and 11 weeks in Scotland between 2018 and 2020, according to data from the Office for National Statistics (ONS).

The pandemic appears to be the reason for the sharp fall, which has seen “significant reductions” in life expectancy in comparison to the 2015-2017 period.

There was a fall in life expectancy across the majority of areas in England, although not by the same amount in each region.

Large drops in male life expectancy at birth were seen in the North East (16.7 weeks) and Yorkshire and The Humber (8.8 weeks).

For women, life expectancy was down in the West Midlands (9.9 weeks) but up significantly in the South West (17.7 weeks).

Tom Selby, head of retirement policy at AJ Bell, comments: “After decades of near constant improvements in UK life expectancy, the COVID pandemic has – for the time being at least – dramatically reduced how long most of us might expect to live on average.”

“These life expectancy falls have not been spread equally across the country, however. In fact, while males born in the North East have experienced a staggering 16.7 week fall in average life expectancy, males born in the South West have actually seen a 5.7 week life expectancy improvement.”

The figures have led to questions being raised over what the implications are for state pensions.

“These significant reductions in average life expectancy will inevitably heap pressure on the Government to rethink the planned hike in the state pension age from 66 to 67 in 2028,” says Selby.

The vast differences in life expectancy in different parts of the UK could reignite the debate around the flexibility of the state pension system.

“The current framework means you cannot access the state pension until you hit state pension age, meaning those with lower average life expectancy can expect to receive less from the state in retirement on average. One idea often floated is to allow people to access their state pension early but at a reduced rate. This could help certain groups who might expect to live less long, although care would need to be taken not to heap more complexity onto what is already a complicated system.”

“Given the catastrophic impact COVID has had on all of our lives – and in particular to life expectancy – it makes sense to begin this debate now. State pension age changes have been planned for a long time and were designed to reflect longer-term improvements in life expectancy.”

Royal Mail struggling to maintain performance levels seen during pandemic

Liam Roche
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Royal Mail struggling to maintain performance levels seen during pandemic

Royal Mail “still needs to work hard at improving operations” says analyst

Many businesses benefitted during lockdowns as people were forced to change their habits due to being at home.

While airlines struggled, many spent their disposable income on renovating their homes, as they were now spending more time there.

One such company is Royal Mail, which saw deliveries surge during the pandemic, as people were unable to go out and buy things in the usual way.

However, the company appears to be finding it difficult to maintain its form as life returns to normal.

“There is a common theme in the markets, namely that lockdown winners haven’t been able to match the volume of product sales as in 2020 but they are ahead of the same period in 2019. That must be judged as progress, given how last year was such an unusual period for all businesses,” says AJ Bell investment director Russ Mould.

Royal Mail, with its latest update showing parcels down on last year but up versus 2019’s figure, is one such company.

“The company seems convinced that the world has changed permanently and we’ll all going to be sending parcels in greater volumes,” says Mould.

“There is a lot of merit to this view as the pandemic has accelerated the shift to e-commerce and so many people have realised it is a lot more convenient to order goods online and have them delivered to their doorstep than trudge round the shops.”

“Royal Mail seems unusually bullish, maintaining earnings guidance despite clear headwinds from cost pressures. That’s a dangerous stance to take as the stock market likes companies that under-promise and over-deliver, not the other way round.”

“The surge in parcel volumes has given Royal Mail a reason to be more optimistic but it isn’t necessarily the final solution to its years of disappointing investors.”

“Longer term Royal Mail still needs to work hard at improving operations and making them efficient. Parcel delivery remains an incredibly competitive space and letter volumes are likely to keep falling. To boost profit margins, Royal Mail must become a leaner, meaner business with even greater automation.”

FTSE 100 consolidates recent gains on Thursday

Liam Roche
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FTSE 100 consolidates recent gains on Thursday

The FTSE 100 is up by 0.45% on Thursday, climbing to 7,115 points at the time of writing as it builds on its recent form.

“The FTSE 100 consolidated its recent gains on Thursday after a meeting of the US Federal Reserve overnight which ultimately revealed few surprises,” says AJ Bell investment director Russ Mould.

This follows a brief respite from major news, although there could soon be some on the way.

“There was nothing to really upset the apple cart. Tapering is still ‘coming soon’. As a teaser this is about as welcome for markets as a trailer advertising a sequel to historic box office stinker Howard the Duck would be for moviegoers, but, still, nothing investors weren’t already aware of,” said Mould.

“There does appear to be some hardening around the idea of a rate rise in 2022 but again this is not a major shock and at least indicates some confidence around economic prospects despite the recent volatility in equities.”

“There is unlikely to be any movement from the Fed’s counterparts at the Bank of England later today – despite inflationary pressures creeping up. However, there will be an expectation of some kind of signal on when its own asset purchases will be scaled back and if a UK rate rise could be in prospect next year.”

FTSE 100 Top Movers

Rolls-Royce (3.76%) and miners Antofagasta (3.38%) and Glencore (1.91%) are leading the way atop the FTSE 100 on Thursday morning.

At the bottom of the pile, Entain (-2.73%), Hargreaves Lansdown (-1.6%) and Polymetal International (-0.58%) are the biggest fallers.

CVS heading in the right direction on “favourable market dynamics”

Liam Roche
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CVS heading in the right direction on “favourable market dynamics”

CVS share price jumps on results announcement

CVS released its full-year results on Thursday and appears to be on a good trajectory.

The group saw its revenue increase by 19.2% to £510.1m, as like-for-like sales increased by 17.4%.

The numbers are a result of “favourable market dynamics”, the company said, which includes pet ownership in the UK rising during the pandemic.

Increased revenue led to a 37.3% jump in EBITDA (underlying cash profits) to £97.5m.

The company announced a final dividend of 6.5p, after dividends were suspended the year before.

The CVS share price increased by 6.8% after the announcement.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, provided further context.

“The vet-clinic giant is barking up the right, very fruitful, tree. A huge boom in pet ownership over lockdown – there are now over 24 million cats and dogs in the UK – means more trips to the vets and more online pet food orders, and that means a ballooning revenue stream for CVS. What’s particularly impressive is that even when you strip out the effects of lockdowns, growth has been very impressive. Having an organic engine driver is much preferred to relying on favourable market dynamics.”

“The group offers a myriad of other services too, which helps pad out revenue and profits. These include a laboratories business which does diagnostics, as well as a cremation service. These alternative sources of income aren’t the main story by any stretch, but they are certainly nice to have,” Lund-Yates added.

“Things to watch out for include a very tough labour market in the veterinary sector because of skills shortages. CVS’ good reputation and improved remuneration packages should help it with staff retention and attraction, but it’s an ongoing battle and one CVS has lost in the past. Failure to secure enough high-quality veterinary surgeons and nurses is a risk for the group.”

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