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Market Outlook: Britain takes vaccine lead, Brexit talks stumble, Ashtead pops

The start of vaccinations in the UK has failed to bolster sentiment among investors with the main indices down marginally
December 8, 2020

 

  • First people begin vaccination programme in UK using the Pfizer/BioNTech vaccine
  • But Brexit is now entering a very uncertain endgame

V for vaccine: A 90-year-old Briton became the first person to be inoculated against Covid-19 this morning as the UK begins its mass vaccination programme. The name Margaret Keenan will hopefully be remembered for symbolizing a momentous turning point in the fight against the virus. Pfizer and BioNTech have had trouble with the supply chain but the UK should have 4m – enough for 2m people – by the end of the year. The second person vaccinated is a certain William Shakespeare from Warwickshire…a good omen? Health secretary Matt Hancock says the Oxford University vaccine will get approval within a couple of weeks and that once the most vulnerable have been vaccinated the government will begin to lift restrictions. Truly light at the end of the tunnel. 

Brrrrrr is for Boris’s Brexit: the saga drags on. UK prime minister Boris Johnson will fly to Brussels this week for a tete-a-tete with Ursula von der Leyen to try to break the impasse. The problem seems to be that there is simply no zone of compromise in the three remaining areas – fishing, level playing field and governance. So with neither side seeing a way to accommodate the other, they are both relying on the time element to do the work for them. This is risky as both sides have said no-deal is better than a bad deal. We know neither wants to compromise on key areas of sovereignty. Nevertheless, a last-minute effort should still lead to some form of agreement, even if it is a slimmer, incomplete package. Sterling dipped sharply yesterday morning on some negative headlines but faded this move easily and this morning GBPUSD is holding steady above 1.33. 

European stock markets traded a little lower in the early part of the session with Brexit risks perhaps weighing on sentiment and mixed session in Asia overnight. US lawmakers are set to pass a funding bill to avert a government shutdown, whilst market attention remains on whether a stimulus package can also be agreed before Christmas and the end of federal support on Dec 26th. Last week’s soft payrolls number ought to add to the sense of urgency. 

US markets traded mixed on Monday, with the Nasdaq rising and the S&P 500 and Dow a bit weaker. Uber says it will end its driverless car ambitions, whilst Tesla shares rallied another 7 per cent ahead of the stock’s inclusion in the S&P 500 later this month. The market cap now exceeds $600bn, which will make it among the largest stocks on the index. Shorts have been well and truly toasted and seem to be throwing in the towel - Jupiter Absolute Return fund manager James Clunie is stepping down after suffering a very bad run from his short Tesla position.

Lockdown in England in November saw UK retail sales growth hit. Following from a string of upbeat numbers for retail, last month saw sales rise by just 0.9 per cent from last year, a marked slowdown from the 4.9 per cent year-on-year growth in October. Retailers will hope that the December lifting of restrictions and a Christmas to be largely spent at home and not on the slopes will deliver a lift. 

With little to do, restaurants shut, and Christmas parties cancelled, grocery sales are resilient – Kantar reports 11.3 per cent year-on-year growth in the 12 weeks to Nov 29th, and 13.9 per cent growth last month alone. November turned out to be the biggest month ever for the UK supermarkets. In the 12 weeks to the end of last month, Tesco sales rose 10.4 per cent, Sainsbury’s +10.8 per cent, WM Morrison +13.7 per cent and Asda +7.7 per cent, with the sector seeing inflation of 1.4 per cent over the month.   

On the earnings front, Ashtead shares shot to the top of the FTSE 100 after the company said it now expects full-year results to beat previous expectations. Enjoying essential business status in key markets helped it remain open over the second quarter, supplying equipment to various key service providers. In the first half, revenues fell 3 per cent, with rental revenues down 4 per cent on a constant currency basis. Operating profit declined to £641m from £771m last year but overall, the second quarter, covering the period to the end of October, was a lot better than the May to July period. In Q2, the decline in rental revenues slowed to just –1 per cent. Pre-tax profits declined -21 per cent in the first half, but Q2 showed a marked improvement from Q1 as profits only fell by –7 per cent. A much more resilient period in the second quarter has allowed management to lift full-year expectations for free cash flow to exceed £1.2bn from previous guidance of £1bn. Rental revenue growth in both the UK and Canada is now seen at 15-20 per cent this year, up from flat previously.  At a group level, full year rental revenues are seen between –3 per cent and –7 per cent from previous guidance of –5 per cent to –9 per cent. 

UK Company Announcements

Numis Corporation (NUM)

It's been a good year for the stockbroker. Preliminary numbers, released today, show a 240 per cent increase in earnings per share for the 12 months to September, a near-doubling in the operating margin, and a shift to a smaller - if more valuable - client base.

Begbies Traynor (BEG)

Despite facing a "subdued insolvency market" stemming from state support measures for UK plc, the business recovery group managed to grow its adjusted pre-tax profit by 25 per cent in the six months to October. Most of the 11 per cent top line increase came from acquisitions.

National Grid (NG.) and SSE (SSE)

Ofgem has published its final determination for the next regulatory period running from 2021 to 2026. It has set the allowed return on equity at 4.3 per cent which is an improvement from the 3.95 per cent it suggested at the draft determination stage in July. The softening of the regulator’s stance saw National Grid and SSE’s shares rise by 2 per cent and 3 per cent, respectively this morning. SSE says it “cautiously welcomes Ofgem's movement on a number of fronts” and both it and National Grid will now review the regulator’s decision and decide whether to appeal to the Competition and Markets Authority (CMA).

Ferguson (FERG)

Underpinned by strong residential end markets in the US, revenue from continuing operations increased by 3 per cent year-on-year in the three months to 31 October to $5.4bn (£4bn). Meanwhile, tight cost control saw adjusted cash profits (Ebitda) rise by 13 per cent to $558m. The second quarter has continued to see low single digit revenue growth.

GB Group (GBG)

The customer validation specialist has delivered strong revenue and net earnings growth at the half-year mark, while slashing net debt and reinstating the dividend

 

Broker Upgrades/Downgrades

PT

Jefferies

William Hill Cut to Hold

272p

 

InterContinental Hotels Cut to Underperform

-

 

On The Beach Cut to Underperform

310p

 

Whitbread Raised to Buy

4,010p

 

Restaurant grp PT raised to 90p(prev 80p)  BUY

90p

MS

Meggitt Cut to Equal-Weight

465p

 

Rolls-Royce Resumed Equal-Weight

132p

Liberum

Paragon Rated New Buy at Liberum

535p

 

Close Brothers Rated New Hold

1,435p

 

Metro Bank Rated New Sell

94p

Berenberg

Hiscox Rated New Hold

1,085p

 

Lancashire Rated New Buy

963p

 

Stock Spirit PT raised to 313p(prev 274p) BUY

313p

Yields pulled back, with the 10-year Treasury down to 0.93 having threatened to break 1 per cent on Friday. Real rates moved further into negative territory, helping to push gold higher. Spot gold rose through the 21-day moving average on the upside as prices cleared the 38.2 per cent retracement of the Mar-Aug rally.

Neil Wilson is chief markets analyst at Markets.com