US 10-year Treasury yield hits 14-month high as inflation concerns increase

Liam Roche
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US 10-year Treasury yield hits 14-month high as inflation concerns increase

President Biden will travel to Pennsylvania to set out plans for a $3tn stimulus package

The US 10-year Treasury yield rose to 14-month highs on Tuesday as expectations for strong growth and inflation caused a sell-off in bond markets.

According to Bloomberg data, the 10-year yield increased by 0.05% from yesterday’s closing level to above 1.76%, the highest point since January 2020, just over a year ago.

The recent round of selling resulted from investors’ positive outlook over America’s vaccine rollout and an additional stimulus package.

Bond markets in America have headed up a global retreat in government debt since the start of the year, as investors worry that the Fed will allow the economy to heat up, with vast amounts of spending along with monetary stimulus to raise inflation.

An index of debt issued by governments in the developed world has dropped by 5% since January on a total return basis.

Joe Biden said on Monday that by the middle of April 90% of adults would have access to a vaccine at a site within 5 miles of their home address. The President will also travel to the state of Pennsylvania on Wednesday to set out plans for a $3tn stimulus package, following his $1.9trn stimulus payment to citizens this month.

Rupert Thompson, chief investment officer at wealth manager Kingswood, said the “massive” scale of stimulus in the US and globally has caused “considerable nervousness over inflation and has been behind the recent sell-off in government bonds”.

Royal Mail to reinstate dividend as parcel business booms

Liam Roche
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Royal Mail to reinstate dividend as parcel business booms

Royal Mail says operating profits for year will be around £700m

Royal Mail (LON:RMG) confirmed on Tuesday that it will pay a one-off final dividend of 10p per share, as well as saying it will outline a new dividend policy alongside its upcoming results announcement in May.

The postal service slashed its dividend after the first lockdown due to the uncertainty caused by the policy announcement.

However, the business benefited from lockdowns as the number of parcels being sent due to people increasingly shopping online led Royal Mail to upgrade its profit forecasts.

Royal Mail revealed its operating profits for the year ending in March 2021 would be in the region of £700m which would be be more than twice that of a year ago.

The FTSE 100 company also provided medium-term expectations for GLS, the overseas parcel deliverer.

GLS is expecting to grow its revenue at 12% annually from a base of €3.6bn in 2019-20 up to the 2023-25 financial year. It also expects to double its operating profit to €500m while generating €1bn of free cash flow with capital expenditure in the range of 3-4% of revenue.

In the nearer-term, GLS is forecasting its adjusted operating profit for FY2020-21 to be around £350mln (€390mln) and adjusted operating profit margin 8.7%, according to a statement released today.

For the year ending in March 2019 Royal Mail paid a total dividend of 25p per share, however, it suspended its shareholder payout at the time of the annual results in June 2020 due to the impact of the pandemic.

Russ Mould, investment director at AJ Bell, commented on the company’s outlook:

“Royal Mail is currently in a sweet spot as the pandemic has accelerated the shift from physical to online retail, thereby creating a massive tailwind for companies that deliver parcels. It will be hoping that this trend remains intact even when people start to go back to work in offices and get out of the house more.”

FTSE 100 rises to 12-day high of 6,785

Liam Roche
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FTSE 100 rises to 12-day high of 6,785

The FTSE 100 was one of the better performing indexes on Tuesday with its key mining, oil and banking stocks all moving in the right direction. The FTSE 100 added 0.7%, lifting it to a 12-day high of 6,785.

“Though Archegos uncertainties are still hanging over the markets, European investors felt settled enough to push the region’s indices higher on Tuesday,” said Connor Campbell, financial analyst at Spreadex.

“There are dangers lurking to undermine these month-end gains. As occurred when February came to a close, bond yields are on the rise. And though the markets have broadly made their peace with that in recent weeks, it could still cause a record high-imperilling wobble,” Campbell added.

“Similarly, just because markets appear to have moved on this morning, doesn’t mean the dust has settled on Archego Capital’s collapse. That situation could still have some nasty surprises up its sleeve.”

FTSE 100 Top Movers

IAG (4.16%), Legal and General (2.94%) and Barclays (2.81%) were the top movers on the FTSE 100 on Tuesday morning.

While Severn Trent (-1.79%), Fresnillo (-1.77%) and Rentokil Initial (-1.41%) lost the most ground on the index.

Dividends

Total FTSE 100 dividend payments (excluding special dividends) are now expected to grow by 21% this year to £73.4 billion – a yield of 3.8%. Rio Tinto is expected to be the index’s single biggest dividend payer in 2021, well ahead of British American Tobacco, Shell, GlaxoSmithKline and Unilever.

Russ Mould, investment director at AJ Bell, comments:

“Current consensus forecasts show that the FTSE 100 is set to deliver its first year of dividend growth since 2018 this year, with a £74.3 billion payout enough to equate to a yield of 3.8%. That compares to a payout of £61.4 billion for last year which, if confirmed by company announcements, would be the lowest figure for the FTSE 100 since 2013.

“Total payments peaked at £85.2 billion in 2018 and even 2022 is not expected to return to that level as corporate profits, cash flows and confidence look to recover from the effects of the pandemic.”

Greatland Gold applies for new licences to expand footprint of Ernest Giles Project

Liam Roche
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Greatland Gold applies for new licences to expand footprint of Ernest Giles Project

Greatland Gold’s applications will increase the footprint of the project from 880km2 to 1,950km2

Greatland Gold (AIM:GGP) confirmed on Tuesday that it has made two applications for new exploration licenses adjacent to its existing ones at the Ernest Giles project in Western Australia.

The applications for Mount Smith (E38/3612) and Welstead Hill (E38/3613) cover a total area of 1,070km2 and join existing tenure at the Ernest Giles project located approximately 250km north-east of Laverton in the goldfields of Western Australia.

Greatland Gold’s applications will increase the footprint of the project from 880km2 to 1,950km2.

They will cover a prospective Archean greenstone rock sequence and were acquired following an internal review of historical and recent regional exploration data. The review concluded that the broader project area is prospective for gold, nickel and base metals mineralisation.

In preparation for the anticipated grant of the licenses, Gretland will focus on enhancing its targeting criteria and refining locations for future drill holes.

Shaun Day, Chief Executive Officer of Greatland Gold plc, commented on the results: 

“The new licences represent an excellent opportunity to double the size of our footprint across the underexplored Ernest Giles greenstone belt. Following a detailed internal review of exploration data, we have identified compelling structural targets in an area containing dense and magnetic units of Archean greenstone sequences, with potential for gold, nickel and base metals mineralisation.”

“This aligns with our strategy to seek to discover Tier 1 deposits both through the ramp-up of exploration activities across our existing 100% owned licences and by identifying new opportunities that can bring value to Greatland. We look forward to reporting progress on the two applications in due course.” 

The price of gold fell yesterday as the US dollar strengthened and hopes of a speedy economic recovery dampened demand for the precious metal.

The commodity fell by 1.18%% to $1,712.90 in the afternoon, while gold futures dipped 1.18% to $1,711.80.

AG Barr profits drop after ‘difficult’ year

Liam Roche
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0
AG Barr profits drop after ‘difficult’ year

AJ Barr to resume dividend in coming year

AG Barr (LON:BAG), owner of Irn Bru and Rubicon, confirmed on Tuesday that its profit and revenue dropped during 2020 following a turbulent year of business.

The company’s revenue came in at £227m for the year, down by 11%, while pre-tax profit fell by 12% to £32.8m.

The business was impacted by the coronavirus pandemic in March 2020 as the UK first went into lockdown. AG Barr’s ‘out of home’ sale of its soft drinks dropped, which saw its revenue fall by 9.1% in the first quarter of the year.

While at points the company did see sales surge, especially during the summer, further lockdowns hit the business hard as revenue fell by 14.6% during the second half of the year.

The firm retains a sense of optimism moving forward and even outlined plans to resume its dividend during the coming financial year.

Roger White, chief executive, commented on the company’s results while looking ahead:

“We delivered a resilient financial performance in a year that was difficult for all. I am extremely proud of everyone in our business for their commitment and flexibility, which allowed us to remain fully operational throughout the pandemic,” White said.

“Across the year, we continued to focus on our key strategic initiatives. We have significantly progressed our multi-beverage strategy, extended our reach into new channels and accelerated our roadmap towards net zero, which we aim to deliver by 2040. We closed the year in strong financial health, with our brands and business poised for growth on a like for like basis, and with the clear intention to recommence dividend payments in 2021.”

“Whilst there now appears to be a route out of lockdown, the immediate future remains uncertain. Notwithstanding this current backdrop, our strategy for the year ahead is to support our core growth initiatives with significant investment.”

“We have exciting plans to deliver across the Group and are confident of continuing to make further progress in the coming year.”

Sharply earnings enhancing deal for React

Andrew Hore
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0
Sharply earnings enhancing deal for React

Specialist cleaning services provider React Group (LON:REAT) has enjoyed increasing demand for its services due to Covid-19. The purchase of Birmingham-based Fidelis Contract Services will be significantly earnings enhancing from day one and will help to increase scale.
The initial consideration is £1.7m - £1.5m in cash and £200,000 in shares at 2.1p each. Deferred consideration could be up to £3.05m depending on the performance in the year to March 2021 and next year. This will be paid in cash instalments between October 2021 and March 2024.
React is a specialist cleaning and decontamination ...

Dollar rising sends gold down

Liam Roche
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0
Dollar rising sends gold down

Spot gold fell by 1.18% to $1,712.90

The price of gold fell on Monday as the US dollar strengthened and hopes of a speedy economic recovery dampened demand for the precious metal.

The commodity fell by 1.18%% to $1,712.90 in the afternoon, while gold futures dipped 1.18% to $1,711.80.

There are three reasons driving this drop, according to Giles Coghlan, chief currency analyst, HYCM.

“Firstly, it has to with the performance of the USD. There is a clear correlation between gold and the greenback. When the dollar is weak, the price of gold tends to rise, and vice versa. With the passing of the recent stimulus bill and the US slowly transitioning out of lockdown, the market seems confident about the future prospects of the US economy, leading to a recovering USD and a drop in gold prices. Should the easing of lockdown measures continue, I would anticipate further declines in the price.”

Coghlan continued: “Secondly, rising real yields. This is like a poison for gold prices: when real yields rise, this pressures gold. Thirdly, gold ETFs have been falling for over 25+ days. The fall in gold ETFs heavily influences gold prices and funds have plenty more to sell. The outlook for gold looks to be a clear sell on rallies in the current environment.”

The dollar index held steady just below four-month highs against its rivals, while gold’s safe-haven status came under threat as investors turned towards riskier assets.

Speculators will now look ahead to Joe Biden’s infrastructure spending package, set for Wednesday, and rumoured to be between $3trn and $4trn.

While many see the precious metal as a hedge against inflation that could come in the wake of Biden’s stimulus, a recent rise in US Treasury yields has dented its attractiveness.

“We see virtually no scope for noticeably higher prices until mid-year, though gold should be able to make significant gains in the second half of the year,” Commerzbank analysts wrote in a note.

“Gold is currently lacking the support of financial investors, as buying interest is low.”

BP Share Price: a balanced strategy required

Liam Roche
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BP Share Price: a balanced strategy required

BP Share Price

The BP share price (LON:BP) is up 17.5% year-to-date after a challenging 2020. Over the same period the FTSE 100 index is up by 2%. While the major oil player could be set to capitalise on an economic recovery across the world, and rising oil prices, a number of factors remain at play that make its outlook difficult to evaluate.

Oil Prices

Oil prices dropped on Monday as the Ever Given ship was refloated in positive news for global supply chains. Brent crude oil fell by 2% before pushing back to 0.6% lower on early Monday trading. However, this will only have a short-term impact. Looking further ahead, BP looks set to profit from an oil price which will outperform in 2021 compared to the year before.

Barclays upped its forecast for oil prices for 2021 on account of a weak supply response from US producers to higher prices following the cold storm in Texas in February. The UK bank increased its forecast for Brent crude oil from $55 to $62 per barrel and West Texas Intermediate (WTI) from $52 to $58 per barrel.

Bank of America (BofA) Global Research and Goldman Sachs Equity Research also raised their oil price forecasts for 2021.

Of course, these bullish predictions are on the assumption vaccinations go according to plan, and economies are able to regain a sense of normality.

BP Dividend

While companies across the board, including BP, decided to slash dividends throughout 2020 due to precarious balance sheets, investors will now look to towards stocks that can generate income going forward.

Despite slashing its dividend payment, BP’s yield remains high, which could bode well for shareholders once its earnings return to normal levels.

Clean Energy

The BP share price’s future prospects will come down to a balance between profiting from oil and moving to clean energy. The company will have to judge when oil production peaks, as well as making smart investments in green technology to secure its future.

BP has committed to spending billions of dollars in renewable energy over this decade. If the company is successful, it could become a major player in the supply of renewable energy. If BP is able to successfully make this move, and investors are tuned in, then there could be money to be made. A recent forecast by the company estimated that demand for oil will fall by over 10% before 2030 and 50% by 2040.

BP confirmed in January that it completed the formation of its strategic US offshore wind partnership with Equinor. The oil company intends to develop a “green” hydrogen project at its Lingen refinery in Germany as part of plans to move towards sustainable forms of energy.

The BP board appears to be under no illusions that it must actively readjust to the future world economy. Investors will be keeping a close eye on its ability to capitalise on oil prices in the near-term as well as the effectiveness of its investing in green energy into the future.

Deliveroo narrows flotation price range as fund managers express concerns

Liam Roche
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Deliveroo narrows flotation price range as fund managers express concerns

Deliveroo lowers price range to between £3.90 and £4.10 per share

Deliveroo, the online food delivery service, confirmed on Monday that it will list its shares towards the bottom of the initially outlined range.

The original valuation price range, which suggested that Deliveroo could have been valued at up to £8.8bn, has now been revised to between £7.6bn and £7.85bn.

The company put the decision down to “volatile” market conditions.

In a statement, the company said: “Deliveroo has received very significant demand from institutions across the globe.”

However, following a price range of between £3.90 and £4.60 per share a week ago, Deliveroo narrowed its price range to between £3.90 and £4.10 per share.

A number of fund managers have expressed doubts over the listing and said they will reject it outright.

James Anderson, manager of Scottish Mortgage Investment Trust, considers the company to be too reliant on London and too focused on slower-growing markets, he told The Times.

This is despite Anderson gaining significant holdings in other home delivery platforms, such as Meituan in China, Delivery Hero, a key player in other Asian markets, and Grubhub in the US.

Anderson told The Times that replicating the success of the aforementioned companies would be difficult for Deliveroo. “I think their model is successful in the unusual economics of London and it’s much more difficult to spread elsewhere,” he said.

A number of other leading fund managers have expressed similar concerns, particularly to do with workers’ rights, the company’s business model and regulatory concerns.

Rupert Krefting, head of corporate finance and stewardship at M&G, said the company’s reliance on gig-economy workers made it a risk for investors.

While, David Cumming, chief investment officer at Aviva, warned of the risk that drivers will have to be reclassified as workers, which would entitle them to rights such as sick and holiday pay. “It’s an investment risk if the legislation changes,” he said.

The cheapest and most expensive areas to buy new build properties in the UK

Liam Roche
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The cheapest and most expensive areas to buy new build properties in the UK

Housing developments are being constructed across the UK every month in an effort to match rising demand.

New builds in the UK do however come with a premium price tag of £306,997 on average, 26.7% more than the average price paid for an existing property.

Across the UK, there is a variation in the price of a new build property, with some regions being more affordable than others.

Top 10 cheapest area to buy a new build

The most affordable areas to purchase new build properties are either in the North of England or Scotland, with Hyndburn, in Lancashire, being the only authority where the average new build costs less than £100,000.

This is followed by North Ayrshire in Scotland at £126,036 and Burnley (also in Lancashire) at £128,613.

RankLocal authorityRegionNew build average price
1HyndburnNorth West£99,034
2North AyrshireScotland£126,036
3BurnleyNorth West£128,613
4InverclydeScotland£149,608
5HartlepoolNorth East£153,681
6Stockton-on-TeesNorth East£154,181
7East AyrshireScotland£158,600
8County DurhamNorth East£159,751
9Argyll and ButeScotland£160,179
10BlackpoolNorth West£160,502

Top 10 most expensive areas to buy a new build

On the other hand, and unsurprisingly, the most expensive places to purchase new build properties are in the South of England. The most pricey being found in prime central London locations such as Kensington and Chelsea (£1,167,805), Westminster (£1,006,564) and the City of London (£930,033).

RankLocal authorityRegionNew build average price
1Kensington and ChelseaLondon£1,167,805
2WestminsterLondon£1,006,564
3City of LondonLondon£930,033
4CamdenLondon£820,735
5ElmbridgeSouth East£752,483
6Hammersmith and FulhamLondon£671,776
7RochfordEast£643,833
8IslingtonLondon£636,980
9HackneyLondon£635,482
10MertonLondon£629,850

Dave Sayce, Managing Director at Compare My Move, the company which conducted the report, commented on the findings:

“Alongside price, there are many other aspects to consider when choosing whether to purchase a new build or an existing property,” Sayce said.

“If you are wanting a property which is immediately livable and ready to move into, a new build may be the best option for you. Most new builds allow you to customise the property to be as bespoke as you like, from choosing the fittings to paint colours. The purchasing process can also be easier, as once you reserve the property it is taken off the market. However, the process from reservation to the completion of construction can be lengthy, so it might not be the best option if you are looking to move in the near future.”

“Although new builds typically offer lower repair and maintenance costs, as well as being more environmentally friendly than existing properties, historical homes do have their benefits. Older properties usually provide lots of character, with features unique to their period, as well as more space and potential to add your own stamp.”

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