Today's Markets: Astra up despite vaccine hiccup, Fed sets dovish route, BT to 'build like fury'

UK vaccination plan hits a bump

The UK's seemingly serene vaccination programme has hit its first bump in the road with indications late yesterday that due to a global supply issue a restricted supply of vaccines later this month will slow progress. NHS England's note indicating that the under 50's should not be offered vaccines before the end of April scuppered hopes that the surge in supply over the next two weeks would continue. While ministers insist it will not affect reopening plans, it may hit confidence. An increasingly fractious relationship is developing between the EU and UK governments over vaccine supplies but this is more likely to be coincidental than anything more sinister, for now. 

Read our analysis of the situation from earlier this week - Is AstraZenecaa victim of vaccine nationalism? AstraZeneca (AZN) shares are up slightly this morning. 

Van-Tam: no evidence of greater blood clot risk from Astra jab

Findings suggest that there is no increased risk of blood clots from the Oxford/ AstraZeneca coronavirus vaccine, the UK’s deputy chief medical officer said at a Downing Street briefing yesterday afternoon.

Professor Jonathan Van-Tam said “there is a lot of work going on” behind the scenes to look at the threat of clots after concerns were raised across Europe about reported cases among vaccine recipients. Evidence suggests “there is no overall excess signal or increased risk”. He added that Europe’s medicines regulator has also said there is no indication that vaccine has caused blood clots, which is similarly the official position of the UK’s MHRA regulator.

Several European countries paused the roll-out of the AstraZeneca jab amid an investigation into the cause of blood clots, begging the question of whether the UK pharma giant is a victim of vaccine nationalism.

At the same press conference on Wednesday, the health secretary reiterated a target of vaccinating everyone aged 50 and above by mid-April, despite the NHS warning of a “significant reduction” in jab supplies. Matt Hancock said “vaccine supply is always lumpy and we regularly send out technical letters to the NHS to explain the ups and downs of the supply over the future weeks”.

Bank of England to follow Fed's dovish route?

Fresh records for Wall Street, a weaker US dollar, yields higher, volatility crushed: these were some of the outcomes from a dovish Federal Reserve yesterday as the US central bank resolutely stuck to its guns to let the economy run as hot as it needs to achieve full employment. European stocks moved higher in early trade Thursday but worries about vaccinations and Covid cases weigh. The FTSE 100 still cannot yet sustain a break north of 6,800 and is the laggard, declining a quarter of one percent this morning.  

Longer dated paper moved a lot as Powell said the Fed would look past inflation overshooting; US 10-year Treasury yields have shot about 10 bps higher today to above 1.72 per cent, whilst 30s are at their highest in almost two years close to 2.5 per cent. Spreads are at their highest in over 5 years. Stock markets liked it – the Dow Jones industrial average climbed 0.6 per cent to close above 33,000 for the first time. The S&P 500 closed within 25pts of 4,000. The Vix fell under 20. 

Tracking the move in US Treasuries, gilt yields rose this morning as markets look to the Bank of England meeting to deliver the next dose of central bank action. It will leave interest rates on hold at 0.1 per cent and the size of the asset purchase programme at £895bn. The success of the vaccine programme – albeit now running into some hurdles – has allowed the Bank to take a more optimistic view of the UK economy beyond Q1 2021. At its February meeting the Old Lady said the UK economy will recover quickly to pre-pandemic levels of output over the course of 2021. It expects spare capacity in the economy to be eliminated this year as the recovery picks up. All this really puts the negative rate conundrum on hold – the next move should be up, if not this year certainly next. Nevertheless, Andrew Bailey stressed earlier this week that the BoE is not concerned by rising yields or temporary inflation blips. So today it will be more about what the BoE doesn’t say. Remaining silent on the rise in bond yields could be the cue for sterling. 

Neil Wilson is chief markets analyst at Markets.com

‘Major’ audit reforms unveiled

Westminster has launched a “major overhaul” of the UK’s audit ecosystem, following several high-profile company collapses including Carillion and BHS.

The government’s consultation on audit reforms aims to “modernise the country’s audit and corporate governance regime”. Under current plans, directors of the country’s largest businesses will be held more accountable if they are deemed to have been negligent. They could face fines or suspensions if evidence of significant accounting errors, hiding crucial information from auditors or “leaving the door open to fraud” is found.

Moreover, companies could have to write into directors’ contracts that bonuses will be repaid if collapses or serious director failures occur up to two years after the pay awards are made. At the same time, they would need to be more transparent about their financial positions – with a view to preventing them from paying out dividends and bonuses when they could face insolvency.

The government’s audit announcement follows on from the ‘Hill Review’ proposed an overhaul of the current listing rules to attract more IPOs and Spac listings, aiming to improve the UK’s investment appeal.

Further reading: The IC guide to company annual reports; become a better investor with Phil Oakley’s insights into the most important document in any investors’ toolkit.

The IC guide to company valuations; Algy Hall’s ultimate guide to calculating, understanding and analysing company valuation.

Roblox: the great disruptor 

Shares in Roblox (US:RBLX) have jumped 11 per cent since it started trading last week, as investors flock to the rapidly growing gen-Z video game platform. The company’s huge pre-teen user base has created more than 18m ‘meta-verses’, building online communities that span the globe. As it straddles both worlds of video games and social media, will Roblox turn traditional industry titans on their heads? Nulishi Karunaratne and Lauren Almeida report. 

Moonpig - worth investing in? 

The US doesn't have a complete monopoly on tech IPOs (and recent proposals from Lord Hill are aimed at making London more competitive). One company to launch on the UK market recently was online greeting cards retailer Moonpig. Our resident analyst Phil Oakley has taken a closer look at whether Moonpig is a worthy investment at this time. 

Companies News: Games Workshop, National Grid, Ocado & more

Games Workshop posts ‘in line’ quarterly update 

In a surprise trading update yesterday afternoon, miniature wargames specialist Games Workshop (GAW) said trading for the three months to 28 February was in line with expectations. Most of its UK and European retail stores were closed during the period due to Covid-19 restrictions and it also experienced disruption to distribution.

The Warhammer maker has seen robust demand for its products during the pandemic as people have turned to new (and old) hobbies during lockdown. As such, investors have become accustomed to profit upgrades from the company. Perhaps disappointed by just ‘in line’ trading, the shares dropped 6 per cent following the announcement.

In accordance with its policy of only distributing “truly surplus cash”, Games Workshop has declared a dividend of 45p per share, which will be paid on 30 April with an ex-dividend date of 25 March. NK

Read Nilushi's recent analysis of Games Workshop for our Ideas section. 

National Grid pivots towards electricity with £7.8bn acquisition

National Grid (NG.) has agreed to acquire Western Power Distribution (WPD) – the UK’s largest electricity distribution business – from US utility PPL (US:PPL) for an equity value of £7.8bn. At the same time, it plans to sell its US-based electricity distribution business, The Narragansett Electric Company (NECO), to PPL for an equity value of £2.7bn.

The transactions reflect a strategic pivot of the group’s UK portfolio towards electricity, with National Grid saying that “electricity distribution is expected to see a high level of asset growth as a result of the ongoing energy transition”.

Further underscoring this shift, the group is also looking to offload a majority stake in its UK gas transmission business and will kick off the sales process later this year. Together, these deals will increase the proportion of its assets in electricity from 60 per cent to 70 per cent.

The WPD acquisition – which hinges on shareholder approval – will be funded by a fully committed bridge loan and is expected to complete within the next four months. The NECO sale is guided to close by early 2022. Both transactions are subject to regulatory approval. Meanwhile, National Grid is awaiting news on regulation which may affect its future prospects on this side of the pond. 

National Grid says that the deals will boost earnings from year one, underpin its target of 5 to 7 per cent asset growth for longer and support its new policy of annual dividend growth in line with CPIH inflation. NK

Ocado retail sales jump two-fifths

Grocery website Ocado (OCDO) posted a rise of two-fifths in retail sales for the 13 weeks to 28 February as shoppers continued buying food online under virus-induced ‘stay at home’ rules.

The average order size stood at £147, helped by “seasonal strength over the festive period” and a “temporary reversal” of shopping behaviour normalising as a third wave of lockdown restrictions were enforced across the UK.

The group added that products from Marks & Spencer consistently comprised more than a quarter of the average basket. The group’s main supermarket partner switched last year from Waitrose to M&S.

Shares in Ocado dipped 3 per cent on Thursday morning but are still up more than a third over the past year, changing hands at roughly £20 apiece. Such growth suggests that there are some distinctly ambitious assumptions baked into the group’s market value.

OSB results delayed by possible third-party fraud

Until yesterday evening, investors in OneSavings Bank (OSB) were expecting full-year figures to be published this morning. They will now have to wait until at least 8 April, after the buy-to-let lending specialist uncovered “potential fraudulent activity” by one of the third parties to which it extends funding.

The loan in question, which is secured against lease receivables and underlying hard assets, had an outstanding receivable of £28.6m as of 31 December, though this now requires a full impairment pending the result of an investigation by professional services group Smith & Williamson.

A breakdown of underlying figures for 2020 nonetheless looks strong given the challenging circumstances. Capital buffers and the loan book both grew, credit losses were in line with half-year results, and the sector-leading cost-to-income ratio continued to contract to 27 per cent. The net effect was a mere 5 per cent dip in underlying earnings per share to 61.4p.

Citing these unaudited figures, analysts at RBC suggested that “any weakness in the shares as a result of this news we would see as a buying opportunity”. The stock is down 5.4 per cent in early trading. AN

Ceres Power raises £181m to fund further growth

Having changed the end of its financial year to 31 December, fuel cell developer Ceres Power (CWR) saw its revenue increase 15 per cent in 2020 to £21.9m. But as the company expanded its headcount and manufacturing capacity, its operating loss widened to £14.8m, versus £7.8m a year earlier.

Still, Ceres is sitting on a £54.3m order book and has continued to make progress in its partnerships with big names such as Bosch (US:BOSCHLTD). The German engineering giant aims to produce 200 megawatts of fuel cell systems by 2024, incorporating Ceres’ ‘solid oxide fuel cell’ stacks. Ceres anticipates this will generate around £23m in higher margin licensing fees between 2021 and 2023.

Following the publication of its results, the company raised £181m through a placing, subscription and retail offer on the PrimaryBid platform. The proceeds will be used to accelerate the development of its hydrogen electrolysis and fuel cell technology and also for working capital purposes.

Ceres says that it is planning to move from Aim to a premium listing on the main market by mid-2022. NK

For more - Ceres Power hopes to become the ARM of energy

BP planning massive UK blue hydrogen plant

Hydrogen could play a significant role in cutting carbon emissions in the UK, but there is still not enough renewable energy capacity to produce hydrogen on a low-to-zero emissions basis. BP’s (BP, Sell, 2 Feb 2021) proposed 1 gigawatt (GW) plant, announced Thursday morning, would use natural gas to produce the hydrogen and then capture the carbon to keep the emissions down. 

BP would have to remove 2m tonnes of carbon dioxide a year from the Teesside facility if it reaches production, which could happen by 2027. 

H2Teesside would provide a fifth of the hydrogen capacity outlined in the government’s 2030 climate plans, although BP said the project would probably begin with a 0.5GW stage in 2027 and then hit 1GW in 2030. The supermajor has already signed a deal with Venator to supply its nearby titanium dioxide plant with hydrogen. 

The carbon capture element would come from the existing Net Zero Teesside, an industrial cluster BP is already involved in. Investors’ Chronicle has previously spoken to consultant Wood Group (WG.) about the cluster, and looked at the realities of hydrogen in detail last year. AH

Read more: Is now the time to invest in hydrogen?

IAG announces bond sale

British Airways-owner International Airlines Group (IAG) has announced the sale of two separate bonds, in a bid to shore up its devastated balance sheet and prop up cash levels as the aviation industry slowly recovers from the pandemic.

The bonds, which will each raise €500m, are set to be priced next week and carry maturities of four and eight years respectively. IAG said the proceeds will be used for general corporate purposes and to help the group withstand a more prolonged downturn in air travel. After initially rising in early trading, the shares are down. AN

BT will build like ‘fury’ after Ofcom nod on fibre profits

BT (BT.A) will build out full fibre “like fury”, chief executive Philip Jansen said on Thursday, after Ofcom decreed that it could keep its excess profits in its push to upgrade the UK’s broadband networks. 

In the regulator’s highly anticipated wholesale fixed telecoms market review, it said that it does not expect to introduce price controls on fibre until at least 2031. The move should help to even out access to high-speed internet across the country, as well as lift the value of BT’s Openreach division. 

Ofcom will allow Openreach to charge £1.70 a month more for full fibre, compared to slower, copper-based access. 

The move follows news of the super-deduction tax policy, which could give another boost to BT’s big network upgrades. The group still faces pressures on its cash flows in the form of a sizeable pension deficit and a spectrum auction scheduled for the coming months. LA

Emis revenues flat despite NHS digitisation 

Behind dealing with the coronavirus pandemic, digital transformation was a key NHS priority last year. But for one of its software providers Emis (EMIS: Buy, 29 Sep 2020), that did not translate into a huge surge in revenues. In fact, the group’s top line stayed flat in 2020 at £160m, although its reported operating profit did grow by a third to £35.8m. Management said it expects to return to growth in 2021, with the “more rapid adoption of digital healthcare...here to stay”.

Remote GP app Babylon has been mulling over a $4bn listing in the US, amid a broader acceleration in ‘telehealth’. London-quoted Emis, which typically boasts strong recurring sales, could constitute one of the less flashy ways to invest in the digitisation of healthcare. LA