Auditor in headlights
The messy fallout from the collapse of Carillion continued, after the Financial Reporting Council (FRC) announced it would be investigating auditor KPMG. The big four accounting group had overseen the outsourcer’s accounts since 1999 and signed off on its 2016 figures in March. That was four months prior to management issuing a profit warning in which it took £854m in contract provisions, raised debt forecasts and suspended 2017 dividends. At a joint select committee meeting, head of the accounting watchdog Stephen Haddrill called for competition regulators to investigate the audit market and for the government to re-examine the FRC’s enforcement powers.
Britvic fizzles out
Weak sales
Against the fantastic ascent of Fevertree (FEVR), Britvic’s (BVIC) sales growth was always going to struggle to impress. However, an increase in organic revenue of just 0.7 per cent during its first quarter – 3.3 per cent including the acquisition of Brazilian company Bela Ischia – was weaker than investors expected. Chief executive Simon Litherland also warned of uncertainty in the UK market as the soft drinks industry sugar levy comes into effect. It will also incur a one-off charge of between £35m and £40m for the closure of its factory in Norwich.
All fur coat
Trump’s American dream
President Trump’s inaugural State of the Union address contained little in the way of solid policy. Instead, his speech struck a self-congratulatory tone, stating there had “never been a better time to start living the American dream”. Mr Trump asserted his economic success, pointing to the creation of 2.4m jobs and the passage of tax reforms. He also appealed to Congress to pass legislation that would allow for $1.5 trillion in infrastructure spending, but provided little detail on where funding would come from.
Credit clampdown
FCA weighs in
Sub-prime lenders could soon be poised for further regulatory intervention, following a review by the Financial Conduct Authority (FCA) into high-cost credit. The regulator said it was concerned about repeat borrowing and refinancing within the home credit market, including where the outstanding amount from a previous loan is incorporated into a new loan. The FCA is also considering forcing lenders to simplify charges on unarranged overdrafts so they correlate more with the amount borrowed and length of borrowing. It plans to publish its proposals in May.
RBS about-turn
Management admission
Royal Bank of Scotland (RBS) bosses signalled they would no longer be fighting the main conclusions of an inquiry into alleged mistreatment of small and medium-sized enterprises (SME) by the lender. Chief executive Ross McEwan admitted that a statement he had made in 2014 that its Global Restructuring Group had turned around the “vast majority” of its customers was not true and that his definition of “turn around” included putting SMEs into insolvency. It follows an inquiry commissioned by the Financial Conduct Authority and undertaken by consultancy Promontory that found some instances of “widespread, inappropriate treatment” of customers.
Insurers spooked
Unstoppable Amazon
The US tech juggernaut Amazon (US:AMZN) has announced plans to join forces with JPMorgan and Berkshire Hathaway to create a not-for-profit healthcare business to provide care to their staff at a “reasonable cost”. The news sparked concern among some US investors that Amazon could start to disrupt the healthcare industry in a similar way it has with retail. Shares in New York-listed health insurers UnitedHealth (US:UNH), Anthem (US:ANTM) and Cigna Corp (US:CI) fell more than 5 per cent on the morning of the announcement.
Superdry sell-out
Chief banks £18m
One of the founders of Superdry (SDRY) has sold 1m shares, netting himself close to £18m in the process. That only equates to roughly 1.2 per cent of the company, and Julian Dunkerton still owns a stake worth more than 25 per cent of the group post-transaction. The shares have flown in the past 12 months, but Mr Dunkerton could be taking advantage of the higher price as momentum behind the stock starts to falter. Although Christmas sales figures were largely what analysts expected, they marked a slowdown from previous growth rates. IC retail correspondent Harriet Russell sees reason to take advantage of the share price weakness.
Are the bulls being reined in? The S&P 500 suffered its worst day of trading since August this week, falling on worries over high stock valuations, as well as a comeback in inflation. Meanwhile the yield on 10-year US government bonds rose to its highest point since April 2014 (see chart) at 2.73 per cent.
There is also some nervousness that the Bank of Japan could scale back its aggressive fiscal stimulus later this year. Some investors have started to question how long bond yields can continue to rise before it dents enthusiasm for equity markets.
