Markets Today: James Anderson exits Scottish Mortgage - have we reached peak tech?

Famed fund manager James Anderson, co-manager of the £16.5bn Scottish Mortgage Investment Trust (SMT), has announced he will leave Baillie Gifford in April next year after nearly four decades with the firm. 

The trust’s co-manager, Tom Slater, will continue to run the trust, with Lawrence Burns, co-manager of the firm’s international concentrated growth strategy, promoted to deputy manager with immediate effect. Find out what this means for the outlook for the star investment trust here.

Signs of a bubble?

US markets endured another stutter yesterday as yields popped. Neil Wilson, chief markets analyst at Markets.com thinks “this is part of the natural churn we are going to see in stock markets as they respond on a daily basis to rises in bond yields”. The Nasdaq closed the session down more than 3 per cent as the 10-year US treasury yield rose to 1.75 per cent. 

But do these wobbles mark the start of the end of the bubble? And where should we be looking for signs that the market is heading towards the dreaded bursting territory? 

Perhaps ESG? Environmental, social and governance investing has been the hottest topic of the last few years - dragging all companies which claim green credentials up in a surge do-gooding. Should we fear the ESG bubble? Oliver Telling dishes the dirt on the trend in this week’s cover feature. 

SPACs offer more evidence of bubble market madness. These ‘special purpose acquisition companies’ have captured extraordinary valuations in the last twelve months as US investors have blindly followed the crowd (and the Spac’s uber wealthy backers) into the promises of great riches. Remind you of anything? Algy Hall recalls a similar obsession with shell companies during the dot.com era. You can read all about it in our latest Lessons from History.  

So as judging market sentiment becomes an increasingly difficult task, with rational principles periodically flying out of the window, perhaps the best course of action is to follow the crowd (not something we are definitely condoning) and maybe celebrity stock pickers could help you out. Jay-Z is reportedly set to make a five-fold return on his relatively recent investment in vegan milk-maker Oatly, when it lists in the US later this year. And he is not alone among the stars to have bagged big bucks from business recently. Oliver Telling explains the perks and dangers of following celebs into investment here. 

Meanwhile, the Bank of England has made a predictable move away from easing and announced that it will leave interest rates on hold at 0.1 per cent. The central bank has taken a more optimistic view of the economic outlook given the success of the UK’s vaccine rollout and the fact that lockdown measures will soon come to an end. 

But fears about the scale of the bounceback given the amount of money currently in the system have led to inflationary concerns among economists and markets. 

But “is it possible that short-term considerations about supply and demand, pent-up or otherwise, are missing the far bigger point about inflation?” Alex Newman has looked for evidence in Charles Goodhart and Manoj Pradhan’s 2020 book, The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival. 

Could inflation soon reach 10 per cent? 

Virtual reality advances further

Exciting news in virtual reality last night, as Sony (JP:6768) revealed its next-gen VR video game controller. The orb-shaped device can detect the movement of the player’s fingers, even if they are not pressing down on the control. The orbs, which will be attached to the player’s wrists, lift all constraints on hand movements and allow developers to incorporate free gestures into VR gameplay. 

Meanwhile, Facebook’s (US:FB) chief technology officer Mike Schroepfer gave a sneak peak into its own augmented reality (AR) development: a wrist-based sensor that allows the user to control devices using “the same electrical motor nerve signals you use to move your hands”. A nifty video demonstrated one potential application: a virtual keyboard that learns and adapts to the user’s typing style (including typos) over time.  

Wearable tech is advancing fast. Is the smartphone the next victim of digital darwinism - and what would that mean for Apple?

Today's companies news: Natwest, Wetherspoons, Sanne and more

NatWest (NWG: Hold, Feb 2021) has today put a slice of its billions of pounds of surplus capital to work, buying back £1.13bn of its own shares from the government. The purchase, equivalent to 4.86 per cent of the lender’s issued share capital, was struck at 190.5p per share.

Along with the rally in the broader UK banking sector, shares in NatWest have doubled in value since early September, when forecasts for credit impairments from the pandemic’s economic fallout, together with Brexit risk, punished valuations.

Despite the rally, NatWest has still bought (and will subsequently cancel) the shares at a 27 per cent discount to tangible net asset value as at 31 December 2020. However, the off-market transaction has also triggered a £500m contribution to the group’s pension scheme, thereby resulting in a 72-basis point drop in the common equity tier 1 (CET1) capital ratio.

Separately, Barclays (BARC) said the £700m buyback programme announced with its full-year results will start today and run until early August. AN

Wetherspoon's chairman takes aim

Tim Martin has been one of the country’s most high-profile critics of the government’s lockdown measures. And it is easy to see why the outspoken chairman of JD Wetherspoon (JDW: Hold, Mar 2021) has taken such a hard line, particularly when you thumb through the pub group’s half-year figures.

The group swung to a pre-exceptional operating loss of £20.7m against a profit of £76.6m at the half-year mark in FY2021, while like-for-like sales decreased by 53.9 per cent, though any meaningful comparison on that basis is rather elusive given the circumstances. Read the full story here.

Sanne also rises

If there was a candidate for the UK company least affected by the pandemic, funds administrator Sanne Group (SNN: Hold, Mar 2021) would be a strong contender. In 2020, its mixture of recurring fees, decent market growth, and muted cost increases boosted the underlying operating margin from 27.3 to 28.3 per cent and pushed up earnings 12 per cent to 25.4p.

Being in a sweet spot business-wise hasn’t resulted in monster payback for investors, however. Even at 596p, the shares are below ground broken at the end of 2017, while the proposed final dividend increase of 5 per cent feels modest. Our full overview of the results is here. AN

Johnson Service: workwear provides resilience amid hospitality carnage

As expected, last year reflected a tale of two businesses for textile rental and cleaning specialist Johnson Service (JSG: Buy, Mar 2021). Amid the pandemic squeeze on the hospitality sector, the group’s ‘hotel, restaurant, and catering’ (Horeca) division swung to a £32m adjusted operating loss – versus a £33m profit in 2019 – with volumes plunging to as low as 3 per cent of normal demand during the first lockdown. While volumes recovered to 55 per cent of usual levels at the end of October, the reintroduction of restrictions saw them drop back down to 9 per cent in January and February. Read more here.

ContourGlobal shrugs off pandemic and increases dividend

Wholesale power generator ContourGlobal’s (GLO: Buy, Aug 2020) adjusted cash profits (Ebitda) rose 3 per cent in 2020 to $722m (£518m). This reflects a $94m boost from the two natural gas-fired combined heat and power (CHP) plants acquired in Mexico in 2019, which offset the absence of any ‘farm down’ gains from selling minority interests in its assets.

Covid-19 induced no material financial or operational impact last year and the group doesn’t expect disruptions in 2021 either. Its guidance suggests adjusted cash profits will rise to $770-880m this year. 

Net debt has held steady at $3.5bn, equivalent to 4.75 times adjusted cash profits. This is set to increase following February’s $837m acquisition of natural gas and CHP assets in the US and Trinidad and Tobago. Still, the purchase is expected to contribute $92m of adjusted cash profits in its first full year of ownership.

The group will pay a 4.0591¢ per share dividend for the December quarter, in line with its policy of increasing the annual payout by 10 per cent. The dividend is covered 2.2 times by free cash flow at the parent level. NK