- London shares play catch up after yesterday's bank holiday
- Travel stocks boosted by favourable chatter on Omicron
Markets open up 2022 in positive fashion
London equities leapt out of the blocks in the first trading session of 2022 with the FTSE100 putting on 1.2 per cent in early trading and the more domestically focused FTSE250 up by almost 1.7 per cent. Investors were catching up after the bank holiday in the UK yesterday with European and US markets enjoying solid gains in trading yesterday.
Over the pond, Apple shares climbed yesterday, delivering the company a new record as the world’s first $3trn company while Tesla also attracted strong buying after outperforming expectations with record quarterly figures - its shares added 13.5 per cent.
In London this morning, reports that the ongoing Omicron wave is not producing the devastating numbers of hospitalisations and deaths seen in previous waves of Covid-19 variants and that cases in London may have plateaued have given a lift to travel stocks, International Consolidated Airlines (IAG) put on 10 per cent, Wizz Air (WIZZ) rose 11 per cent and easyJet (EZJ) rose 9 per cent while banks and energy stocks were also in demand.
One word of warning on the UK economy though from fresh consumer lending data issued by the Bank of England which showed UK consumer borrowing rose £1.2bn in November, of which £900m was on credit cards, as shoppers prepared for Christmas. These figures were recorded before Omicron swept through the country and we are yet to see tangible evidence of the effect this has had on the economy. With inflation soaring and further energy price rises to come in the Spring the UK consumer is likely to come under more pressure as we head deeper into 2022.
Companies
Rolls-Royce shares climb on Bergen sale
Rolls-Royce (RR) shares climbed 4 per cent after the engine maker said it had completed the sale of its Bergen Engines business to Langley Holdings.
The aero engine maker was one of a number of travel-linked companies whose shares rebounded as evidence grows that the Omicron coronavirus variant is proving to be less deadly than the previously-dominant Delta variant.
Rolls-Royce said it expects sale proceeds of €91m (£76.1m) to be generated from the Bergen Engines sale. It will also retain €16m of cash. The money will be used to pay down debt.
The deal is the latest of a series of disposals by Rolls-Royce, which included the €1.7bn sale of its ITP Aero business in Spain in September to Bain Capital Private Equity, as it looks to rebuild its balance sheet. The company said in August 2020 it expects to raise at least €2bn from asset sales as it bids to regain an investment-grade credit rating it lost a month earlier after Moody’s downgraded its debt.
Bergen Engines is based in Norway and makes medium-speed engines used in ships and power plants. The company employs 950 people and generated about €250m of revenue last year.
Rolls-Royce shares have see-sawed in recent months as good news about contract wins for the US military and funding for its small modular reactor consortium has been offset by renewed disruption to long-haul travel. The company’s shares currently trade at 23-times Facset forecast earnings but a recovery in aviation should be supportive of ongoing efforts to repair its balance sheet. We maintain our buy recommendation.
DX suspended from trading
DX Group (DX.) has been suspended from trading on Aim after missing its annual report deadline. The hold-up in the courier company’s accounts is due to a corporate governance inquiry, sparked by an internal investigation started in the financial year ended 3 July 2021.
In November, DX said the inquiry would be “expedited as quickly as possible”, but was unlikely to be wrapped up before 2 January 2022, which marks six months from the end of the relevant financial period. According to DX, the inquiry is now “progressing steadily” but has yet to be concluded.
As a result of the delay, trading in the company's ordinary shares was suspended from 7.30am on 4 January 2022. The suspension will be lifted when the annual report is eventually published.
Investors buy into Aviva’s expanded buyback
Aviva (AV.) found itself among the risers after investors used the reopening of markets after the extended Christmas break to clamber aboard the insurer’s expanded share buyback programme. In December, the insurer expanded its initial share buyback programme to £1bn, up from the £750m announced in August, after hitting its targets for higher than expected cost savings, alongside a number of successful disposals - Aviva’s business in Vietnam was the latest non-core asset to be sold off.
The insurer, which has endured a torrid decade under a succession of chief executives, repeated its total share buyback target of £4bn target. But management is under pressure from a Stockholm-based activist investor, Cevian Capital, which owns 5 percent of Aviva, to cut costs and boost returns by at least a further £1bn. Cevian’s reputation for forceful dealing precedes it after a year in which it built up an 8.5 per cent stake in beleaguered educational publishing company Pearson (PSON), as well as putting the squeeze on Swiss engineering company ABB (ABBN: Swiss) to separate the business.
Macfarlane sells label division
Glasgow-based packager Macfarlane (MACF) has sold off its labels business for £6.4m, saying it will use the money to grow its protective packaging division.
Macfarlane Labels Limited and its subsidiaries have been bought by Reflex, a privately owned packaging specialist, in a deal that was completed on New Year’s Eve. The labels business generated profit before tax of just £0.3m in calendar year 2020.
Reacting to the disposal, Shore Capital reduced its EPS figure for financial year 2022 by 0.1p to 10.6p. However, the investment group said the sales proceeds, bolstered by a £30m bank facility, could drive Macfarlane’s organic and acquisitive growth strategy, as operating conditions continue to normalise from the pandemic. Shore Capital also noted a net margin accretion and a lower interest cost expectation.
Macfarlane Labels employs 109 employees who will remain in the business after the sale.
