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Today’s Markets: Wild Friday on Wall Street leads to positive Europe opening

Find out what today’s key news stories might mean for your investments
Today’s Markets: Wild Friday on Wall Street leads to positive Europe opening
  • Monday companies news: Pearson, Deliveroo and takeovers in the air
  • Pension pay gap revealed on International Women's Day
  • Interactive investor buys EQi
  • Path out of lockdown: schools reopen

On International Women’s Day, pension manager Scottish Widows has published a report into the pension pay gap, revealing that the average woman in her twenties today will retire with £100,000 less in her pension than her male peers.

The truth is that despite all the progress in securing equal rights for women in society and the workplace, their financial situation sits in stark contrast to those of men. Rosie Carr has revealed seven steps to dealing with this issue here. 

 

Monday companies news: Pearson, Deliveroo and takeovers in the air

Pearson unveils another restructuring plan 

Pearson (PSON) has announced another restructuring plan, as the publisher scrambles to keep up with a broad-based digital shift in education which has been accelerated by the coronavirus pandemic. 

Chief executive Andy Bird, who joined in October last year from media giant Walt Disney (DIS), said that he was optimistic that the group could deliver “sustainable growth” via its new direct-to-consumer, online first model. But a delayed start to its digital transformation meant that adjusted operating profits almost halved to £313m in 2020, as the spread of Covid-19 closed bricks-and-mortar schools and exam centres. LA

Deliveroo releases IPO documents

Deliveroo losses narrowed last year as soaring demand created by the pandemic led to a 64 per cent jump in total sales, the company revealed today in its listing document. Gross Transaction Value (GTV) increased 64.3 per cent from £2.5bn in 2019 to £4.1bn in 2020. Investors will be encouraged to also see underlying gross profit as a percentage of GTV rising from 7.6 per cent to 8.8 per cent over this period, indicating Deliveroo is becoming more efficient at getting things from A to B. This all culminated in an adjusted EBITDA loss of £9.6m, compared to a loss of £231.6m in 2019. The company is applying for a standard listing to enable a dual class share structure that will let founder Will Shu retain control. A shakeup of listing rules combined with a valuation of around £7.5bn could mean it joins the FTSE 100 in the not-too-distant future. The £50m worth of shares being earmarked for customers will likely be in high demand. NW

RHI Magnesita: profits knocked by production drop

Reflecting the pandemic-driven decline in steel and cement production, refractory products specialist RHI Magnesita (RHIM: Buy, 8 Mar 2021) saw its adjusted operating profit drop by almost two-fifths at constant currencies in 2020, to €260m (£223m).

 Demand picked up towards the end of the year with momentum carrying over into the first quarter of 2021. RHI says that its adjusted operating profit in 2021 should be in line with company-compiled analyst consensus of €310m, although this would still be down from its 2019 profit of €408m. NK

Hutchmed projects fourfold increase in oncology sales

More than a quarter of the world’s cancer patients are based in China and regulatory reforms are currently under way to address major unmet medical needs in the country.

These trends should bode well for Hutchison China Meditech (HCM: Buy, 5 Mar 2021), which has invested in drug innovation in its namesake nation for two decades. The Aim-traded company now has two oncology drugs approved in China and hopes that a third will be cleared in June. 

Oncology and immunology sales for the group could reach $110m to $130m in 2021, it said last week, marking a more than fourfold improvement on 2020 at the upper end of guidance. Read the full story here. HC

 

Market Outlook: Wild Friday on Wall Street leads to positive Europe opening

European shares edged higher in early trade after a blowout jobs report from the US on Friday drove gains on Wall Street and stoked further volatility in bonds, whilst the US Senate passed Joe Biden’s $1.9tn stimulus package over the weekend. This massive relief bill will deliver a huge fiscal impetus in the second quarter of the year just as the US economy is buoyed by reopening, as Friday's jobs report indicated is already taking place.

US payrolls increased by 379,000 in February and January’s numbers were revised up to 166,000 from 49,000 as the opening of hospitality businesses suggests consumers are coming out in force. The big beat in turn drove up the longer end of the yield curve as the 10-year yield jumped above 1.6 per cent and 30-year climbed north of 2.3 per cent. Stocks saw wild swings on Friday (the S&P 500 moved in a 120 point range and the Dow swung by 800 points) before notching solid gains. 

The turnaround indicates tech stocks are still on the hook for losses as yields rise but cyclical names are finding traction to support broader gains. Tesla shares ended the week almost 4 per cent lower under $600 - some 30 per cent below its all-time high. This is a market that is taking out stretched growth valuations and rewarding value and cyclical patience. 

Brent crude rose above $70 for the first time in a year after an attack on Saudi Arabia’s oil facilities on Sunday. This is the kind of geopolitical risk premium we have come to expect over the years but really prices are being driven by a tight market that has been squeezed even tighter by OPEC’s surprise decision not to increase supply next month. 

This week’s economics

German bunds are in focus ahead of the week’s ECB meeting after rising about 25bps this month – how much does the central bank lean against the pop in yields? Chief economist Philip Lane has already stressed the importance of the yield curve to the ECB – noting that there are 'two key yield curves in the euro area for the funding conditions of all sectors in the economy'. 

You can read more about upcoming announcements in Chris Dillow’s overview of this week’s economics, here.

 

Corporate Actions Update: Ferguson, Arrow Global and more

Ferguson’s (FERG: Hold, 29 Sep 2020) ordinary shares will commence trading on the New York Stock Exchange later today under the ticker symbol ‘FERG’. The plumbing and heating products specialist will retain its London listing, although chairman Geoff Drabble says that “the board believes the natural long term listing location is the US.”

Having disposed of its UK business, Wolseley, to private equity last month Ferguson now generates all of its revenue in North America. Drabble says that “as previously announced, after a period of transition the board intends to hold a shareholder vote on a proposal to change the primary listing to the US.” NK

Arrow Global (ARW: Hold, 8 Feb 2021) has said it is “minded to recommend” a revised 307.5p per share offer for the non-performing loan specialist from private equity firm TDR Capital, a month after takeover talks were first disclosed. Those talks continue ahead of a 23 March deadline, by which time TDR must make a firm offer or walk away.

Sensing a deal is now more likely than not, the market bid up Arrow shares to 296p, well below Jefferies’ 420p price target but around five times’ consensus book value forecasts for the 2020 year-end. Given the colossal debt pile, that looks generous. Hold/await documents. AN

Meanwhile, oil and gas services group ADES International (ADES) will leave the London Stock Exchange in a take-private move by its 64 per cent shareholder. The rationale for the $12.50 (904p) offer is the lack of trading volume and share price performance since ADES listed in 2017, it said. This is the second management-backed delisting in recent months, after the Kaz Minerals (KAZ) chairman and major shareholder announced a similar effort in October. ADES shares rose to $12 on the announcement, from $9 on Friday. 

The offer comes through a United Arab Emirates company called Innovative Energy, registered last week and owned by ADES chairman Ayman Abbas and managing director Mohamed Farouk Abdelkhalek. The Saudi Arabian Public Investment Fund has backed the deal, providing the $180m or so needed to buy out ADES’s minority shareholders in exchange for a stake in Innovative Energy. 

The deal needs 57 per cent acceptance from minority shareholders to go through but Innovative Energy put a caveat in the offer that this could be reduced by the bidding company. The offer is not subject to the UK Takeover Code or the equivalent in Dubai. AH

Interactive investor buys EQi

interactive investor, the UK’s second largest do-it-yourself investment platform, has announced its acquisition of Equiniti’s retail investment platform EQi. 

The move comes weeks after interactive investor moved tens of thousands of former Share Centre customers onto its platform, and will be the group’s fifth takeover in four years. 

The acquisition of EQi, for £48.5m subject to post completion adjustments, is expected to grow interactive investor’s platform to circa £50bn assets under administration and over 400,000 customers. 

Richard Wilson, chief executive of ii, said: “We feel privileged to serve EQi customers and, as a matter of course, if, six months from migration, we find that they would have paid less under EQ’s charging model, we will refund the difference.”

interactive investor distinguishes itself from rivals Hargreaves Lansdown and AJ Bell by having a flat-fee pricing structure across all products and enabling customers to hold foreign currencies in their account. Find out which platforms we rate the highest here. MM

SourceBio in elite rugby deal

Shares in Aim-traded SourceBio (SBI) were up 7 per cent this morning after the lab services company said it had signed a contract to provide testing for elite rugby in England. The company will provide testing services to England Rugby Senior Men’s squad and support staff and to all of the 12 Premiership Rugby clubs players and staff. The group, which floated on London’s junior market in October 2020, said on Monday that it has processed more than one million Covid-19 antigen RT-PCR tests for the health department and the NHS, private hospital groups and commercial customers since May last year.

Enhanced testing, along with the rapid roll-out of effective Covid-19 vaccines, will be crucial in determining how far, and how quickly, the hospitality, travel and tourism industries are unlocked in the coming months. HC

 

Path out of lockdown: schools reopen

Children across England have returned to their classrooms this morning, marking the first step on Boris Johnson’s exit-route from lockdown. A limited selection of other rules have also been relaxed today, allowing two people from different households to meet outdoors for “coffee on a bench” and other recreational purposes. Still, broad ‘stay at home’ guidance remains in place.

The government and its scientific advisers will monitor Covid-19 cases closely over the coming weeks, taking a “data not dates” approach before deciding whether to proceed as planned and relax restrictions further on 29 March. All being well, from the end of this month, people will be allowed to meet under “rule of six” guidance outside. Stay at home instructions will draw to an end and outdoor sports grounds will open up again.

Westminster hopes to lift social restrictions entirely from 21 June. This would provide a much-needed shot in the arm for the tourism, travel and hospitality sectors, which have been among the worst affected by tough virus-induced measures. Investors’ Chronicle asked what the path out of lockdown could mean for your portfolio after the Prime Minster outlined his route to “reclaiming our freedoms” on 22 February. As unveiled during Chancellor Rishi Sunak’s Budget statement last week, the government has extended certain support packages for the businesses hardest hit by the pandemic. HC