Proactive Investors -
- FTSE 100 down 5 points at 7,437
- JD Sports is Berenberg's top retail pick
- Computacenter (LON:CCC) jumps after strong results
Flat start expected in the US
Across the pond now, and it looks like a subdued start on Wall Street, on as tensions rise in the relationship between the US and China.
Investors also continue to mull the possibility of a further US interest rate increase following a batch of robust economic data this week.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.1% lower, while those for the S&P 500 fell 0.1%, and contracts for the Nasdaq 100 futures were down 0.1%.
Apple (NASDAQ:AAPL) recovered its poise after a two-day fall which saw close to $200 million wipred off its market value.
Reports that China could limit the usage of iPhones sparked the falls highlighting the ongoing friction between he companies over access to technology.
Neil Wilson at markets.com is “not convinced a full bazooka is on the cards – for instance an outright Apple product ban doesn’t seems very unlikely.”
“It’s no coincidence that Huawei is back with a new flagship device just before Apple launches the iPhone 15 – Beijing will be happy to let rumours do the rounds to nudge consumers into buying China not America,” he said.
“However, we can also see it perhaps through the lens of the broader tit-for-tat between the US and China, so won’t necessarily be forgotten soon and it will not be immaterial in terms of sales for Apple,” he added.
Elsewhere, Michael Barr, the Federal Reserve’s vice-chair for supervision, will speak about payments innovation at the Philadelphia Fed’s annual fintech conference.
Aviva and M&G favoured UK insurance names at Morgan Stanley
Aviva PLC (LON:AV) and M&G are Morgan Stanley (NYSE:MS)’s favoured UK insurance plays trading at “relatively attractive multiples.”
The investment bank was taking a look at the sector in the wake of the transition to reporting under the IFRS 17 accounting standard.
It explained the earnings revision has been around negative 2% which it see as not material with the main impact felt by UK life insurers where earnings downgrades are material at more than 20%.
For life insurers, the key metric MS is focused on is the movement in contractual service margin (CSM), especially organic CSM growth which is new business profit add interest accretion less release to P&L.
This reflects the underlying growth in the business and the range was minus 4% to plus 11% in recent results, the bank noted.
Morgan Stanley said the sector is currently trading at a price to book value of 1.6x “which in our view is reasonably attractive.”
It rates Aviva and M&G at overweight.
Berkeley's update surprises no-one despite tough markets
The muted response to Berkeley Group PLC’s trading update just shows how low expectations are in the City towards UK housebuilders at present.
The FTSE 100-listed housebuilder said reservation levels have fallen 35% reflecting the tough economic and political backdrop but the stark number was expected.
Russ Mould at AJ Bell said the update “surprised nobody,” but “a 35% drop in reservations tells you just how tough the housing market is right now.”
UBS said the “deterioration is consistent with others in the sector reporting sales rates over recent months.”
The sharp fall showed the recent interest rate hikes which have pushed up mortgage costs “are causing a relative lack of urgency among new buyers,” in the opinion of Aarin Chiekrie, equity analyst at Hargreaves Lansdown (LON:HRGV).
The company also bemoaned the planning which Mould said “suggested the sector’s current travails are prompting some testiness.”
“That’s not to say such complaints aren’t justified given how under-resourced many local planning departments are,” he added.
But Chiekrie said: “Looking bigger picture, Berkeley’s London focus offers something different to peers, and demand in the capital’s likely to remain more robust than other areas of the country.”
“Add to the mix that the UK housing market’s suffering from a fundamental supply shortage, and the long-term picture doesn’t look so bleak,” he said
Richard Hunter head of markets at interactive investor thinks that Berkeley is, in some ways, “a different beast to many of its competitors, with a potential edge coming from its mix of an exposure to London and the South East, higher-end properties and the regeneration of brownfield sites in which it is well accomplished.”
He pointed out the cash position remains strong which provides a potential buffer against a punishing background and a progressive dividend policy seems likely to be followed.
But he cautioned it is “far from being immune to the wider issues of mortgage availability and affordability, planning bottlenecks, uncertain consumer propensity to buy and a cloudy outlook.”
JD Sports is Berenberg's top retail pick, ups target
JD Sports Fashion PLC (LON:JD) is top of the FTSE 100 risers following positive comments from broker, Berenberg.
The bank pointed out that since the initial excitement at the time of its capital markets day in February, the shares have since fallen by nearly 30% due to macro uncertainties, peer warnings and perceived execution risks.
“This looks harsh to us, as consensus earnings have continued to rise, and we think risks are lower than the market fears,” Berenberg analysts said.
“We also think investors still underappreciate the strength of JD’s model, its positioning and the international opportunity,” it added.
“JD is more than a retailer – it is a global brand dominating “mindshare” of the generation-Z consumer, with impressive local and global social media engagement (eg c66m TikTok likes versus an average c28m for sports brands and c5m for sports retail peers),” Berenberg said.
It described the JD fascia as the “jewel in the crown,” while recent acquisitions add “lots of strategic value”.
Near-term concerns well overdone with the read-across from Foot Locker (NYSE:FL) and Dick’s Sporting Goods results in the US “limited.”
The bank thinks JD offers extreme value for the quality and growth on offer, looking cheap against every peer group.
“The stock is priced for significant downgrades, which we do not think will materialise, creating an attractive entry point ahead of near-term catalysts,” the bank said, noting half-year results ahead.
“JD is our top pick in the sector,” the broker concluded.