A decent end to last week on Wall Street, following on from the huge turnaround in sentiment last Monday, has fed through to renewed positivity in London this morning with shares across the board enjoying decent gains in early trading. The FTSE100 has built upon its feat of holding above the 6,300 line at the end of last week with further gains. Cyclical and consumer-related stocks are in favour again with the likes of International Consolidation Airlines, Virgin Money and AO World among the top gainers. Whether this marks a genuine shift to cyclicals as investors look beyond the coronavirus to the sunny uplands of a post-vaccine world remains to be seen as some, including our own Phil Oakley, are worried that the vaccine high may not last forever.
Quite where some of the optimism among traders originates is still up for debate. It is going to take some turnaround in consumer confidence, and spending, to pull the UK economy out of its current rut. The chart below indicates how the collapse in UK household spending has outpaced all other major economies and for an economy built on consumer spending, and one facing the uncertainty of Brexit-related disruption in the New Year, this is a significant worry.
Among the companies reporting this morning, Vodafone stands out. Shares gained 1 per cent after it reported a slowing in revenue declines across key areas of the business and pre-tax profits topped €2bn. Concerns remain about the group's exposure in countries still ravaged by the worst of the coronavirus' second wave such as Italy and Spain but some investors clearly think they can sniff the first signs of a turnaround.
UK Company Announcements
| Vodafone (VOD) | The telco’s top-line dropped 2 per cent to €21.4bn (£19.2bn) in the six months to September, hit by lower mobile phone sales and the impact of Covid-19 on roaming and visitor revenue. Management has again maintained its payout to shareholders, with an interim dividend of 4.5 cents per share. |
| Diploma (DPLM) | Revenue dropped by 1 per cent in the year to 30 September to £538m. This reflects a 7 per cent dip in organic sales and 1 per cent currency headwind but 7 per cent growth from acquisitions. Adjusted operating profit declined by a tenth to £87m, with the margin contracting by 1.6 percentage points to 16.2 per cent. The group is guiding to “mid-single digit” underlying revenue growth next year and a return to historic margins of around 17-18 per cent. |
| Pennon (PNN) | According to The Sunday Times, Pennon is considering a takeover of private water company Southern Water. Analysts at broker Jefferies estimate this would cost at least £6bn but note that Southern’s relative underperformance on regulated equity (RORE) “would be dilutive to Pennon's top performer status between 2015-2019”. Value for shareholders would only be created if Pennon were to eke out performance improvements. Any transaction would likely require approval from the Competition and Markets Authority (CMA). |
| Kingspan (KGP) | Sales for the nine months to 30 September dipped by 5 per cent year-on-year to €3.27bn (£2.93bn). All things considered, the group says that its end markets are “in reasonable shape” and that trading in the fourth quarter has been “strong”. Kingspan is guiding to a full year trading profit “marginally ahead” of the €497m it recorded in 2019. |
| Kainos (KNOS) | Pre-tax profits doubled over the first-half thanks to strong demand across both Workday and digital services divisions. The interim dividend was raised 83 per cent to 6.4p a share and was accompanied by a special payment of 6.7p. |
