Proactive Investors -
- FTSE 100 higher, up 10 points
- Sainsbury's advances as Bestway buys stake
- Chancellor to unveil plan for growth
9.26am: Bestway swoop shows UK's shares "are cheap"
Bestway’s swoop for a 3.45% stake in Sainsbury’s “is another indicator that UK shares are cheap.”
That’s the view of John Moore, senior investment manager at RBC Brewin Dolphin who added this was especially so in the “retail sector, which has somewhat of a dark cloud hanging over it.”
He suggested the deal would put “a cat among the pigeons and remind stock market-focused investors that trade values for assets may be much higher.”
He noted Sainsbury’s is one of the least favoured FTSE 100 stocks among analysts and the fact that it has been the target of investment from another sector player could spark a flurry of activity around the company and more widely.
9.16am: Off the rails - HS2 might not make it to central London
The UK’s flagship high speed rail project linking the capital to the Midlands and the North may never reach central London, according to a report in The Sun.
Blighted by soaring inflation, HS2 bosses are weighing up a scaling back of the project — including delaying its Euston terminus to 2038 or scrapping it altogether, the paper said.
EXC: Inflation blighted HS2 in chaos with delay or scrap of it arriving at Euston.Construction costs pain means scaling back of the project under live discussion in Whitehall.
Spent last few weeks under bonnet and it's not looking good https://t.co/5PrlFNp0Nt
— Harry Cole (@MrHarryCole) January 26, 2023
A two to five-year delay to the entire project is being considered, with fresh fears the Birmingham to Crewe and Manchester legs will also be scrapped.
High speed trains would instead run from a new hub at Old Oak Common in West London’s suburbs rather than HS2 going all the way into the city centre with a new tunnel.
HS2 bosses have privately admitted soaring construction costs mean they will miss their £44bn phase one budget by “many billions” — with a quarter of the contingency funds already spent.
9.00am: FTSE little changed, Sainsbury's leads the way
London’s blue chips have moved either side of the opening line in early exchanges but appear to have settled on the upside for now with the FTSE 100 up 5 points.
Sainsbury’s is top of the risers, up 5.5%, while Tesco (LON:TSCO) was also slightly higher after the Bestway news with the family-owned business swooping for a 3.45% stake in the grocer.
“The news comes as a surprise to us and may spark some chatter around both Sainsbury and the wider sector with respect to corporate activity and equity values, noting that current metrics are undemanding” Sainsbury’s house broker, Shore Capital commented.
Michael Hewson at CMC Markets noted the bid talk but pointed out that “one only has to look across the High Street at what’s happened with Morrisons and Asda to realise how any bid if it were to happen might end up becoming a very expensive proposition, in what is an incredibly competitive marketplace.”
“Bestway would also have the considerable task of convincing Sainsbury’s two largest shareholders, the Qataris and Vesa that they have a credible plan to take the business forward” he stated.
But Bestway’s position as a wholesaler could offer synergies for Sainsbury in any future relationship given that Tesco already owns Booker, he suggested.
Oil stocks have also provided support with both BP PLC (LSE:LON:BP.) and Shell (LON:RDSa) PLC (LSE:SHEL, NYSE:SHEL) prominent on the upside.
Not such a super day for branded retailer, Superdry PLC (LSE:SDRY), which plunged 15% after it issued a profit warning due to increasing uncertainty and an underperformance in its wholesale business.
The clothing retailer said it now expects to break even for the full-year, compared to previous estimates of £10mln to £20mln in pre-tax profits.
Elsewhere, Amigo Holdings tumbled nearly 10% after the sub prime lender said that the expressions of interest it had received so far for a planned capital raise were below its target of £45mln.
Amigo reiterated that if it cannot raise the extra funds by May 26, 2023, it would start an orderly wind-down of the business.
8.36am: Hunt to lay out growth plans
The chancellor, Jeremy Hunt, will use a speech today to pledge to transform ‘British genius and hard work’ into long-term prosperity.
The Daily Mail reported that Hunt will unveil a plan for growth, the hitting out at the ‘declinism’ peddled by Labour and say this country is well placed to exploit ‘the growth sectors which will define this century’.
He will insist that downbeat projections from gloomy forecasters ‘do not reflect the whole picture’ and argue that the economy is standing up well against global rivals.
Making ‘the case for optimism’, he will claim EU red tape has held back investment and productivity but future growth can be ‘built on the freedoms which Brexit provides’.
Hunt was reported to have told a Cabinet ‘awayday’ at Chequers yesterday that the government could meet Rishi Sunak’s pledges to halve inflation, kick start growth and rein in debt.
But he warned it would require tight control over spending, including resisting union calls for pay rises that could fuel price rises.
Tory MPs pushing for tax cuts in the March Budget are also set to be disappointed, with the chancellor expected to warn today that the battle against inflation comes first.
Mr Hunt will pledge a relentless focus on key industries of the future in which the UK has a ‘competitive advantage’, such as digital technology, green industries, the life sciences, advanced manufacturing and the creative sector.
‘Our plan for the years that follow is long-term prosperity based on British genius and British hard work ... and world-beating enterprises to make Britain the world’s next Silicon Valley,’ he will say.
Hunt was reported to have told ministers yesterday that he believes the economy will be out of recession and growing again by autumn – and inflation will be significantly lower.
In his speech today, he will argue that, although UK growth has slowed since the financial crash, it has remained ahead of France, Japan and Italy – and point out that the economy has kept pace with Germany’s since the EU referendum.
‘Declinism about Britain was wrong in the past – and it is wrong today,’ he will say.
He will also highlight reforms to City regulation and plans to review more than 4,000 EU laws still on the statute book.
Hunt will set out the need to get four million people of working age back into employment to help tackle labour shortages that are fuelling inflation and hampering the economy.
8.18am: FTSE dips at the open
FTSE 100 opened slightly lower despite a rally in the US overnight as investors looked ahead to a speech from chancellor Jeremy Hunt later today, while one of the UK’s best known names, J Sainsbury (OTC:JSAIY) PLC (LSE:SBRY), was in the spotlight after Bestway took a 3.45% stake.
At 8.15am the FTSE 100 was down 6 points at 7,755 while the FTSE 250 was 4 points lower at 19,911.
The news that Bestway, a family-owned company which runs the UK’s largest independent cash and carry business, has taken a stake in Sainsbury’s pushed shares in the grocer over 6% higher.
Bestway said it has no plans to bid for the FTSE 100-listed company, but may buy more shares from “time to time” and Sainsbury said it would liaise with Bestway as it would with any shareholder.
Rival Tesco PLC was also a firm feature, up 1%.
News of strong demand and bookings growth pushed On the Beach Group PLC 6.6% higher. The online beach holiday retailer said bookings since the Christmas period have materially increased and whilst it is still very early in the year, group total transaction value since the start of the financial year to date is up 68% vs the equivalent period in the prior year.
But Rolls-Royce Holdings PLC’s new CEO’s call to arms failed to impress the market with shares 2.3% lower after Tufan Erginbilgic was reported by the FT to have told employees it must transform the way it operates or it will not survive.
The FT reported that in a global address to staff, parts of which were shared with the paper, Erginbilgic had warned that investors were losing patience with the FTSE 100 group.
Meanwhile Direct Line Insurance Group PLC was little moved by news that CEO, Penny James, has agreed to step down with immediate effect.
The online insurer warned on profits earlier in the month.
8.13am: Forex daily: USD sees some short-term upside against GBP and EUR, but analysts split over Fed direction
Most of the attention is in the equities market today, at least for US investors encouraged by Thursday's surprisingly strong 2.9% gross domestic product growth for the final quarter of 2022, beating forecasts by 0.3 percentage points.
Healthcare services, housing and utilities, and personal care services led the growth, while spending on automobiles and parts proved a tailwind.
Core personal consumption expenditures (a measure of the spending on goods and services) fell from 4.3% to 3.2% in the last quarter, which according to Bloomberg analysts “will probably offer more evidence supporting a slower pace of Fed hikes”.
Analysts added that “the core inflation gauge probably slid to 4.4% last month, and falling energy prices and discounts to clear excess inventory may stay disinflationary through the first half”.
Yet, as ING pointed out, “the Federal Open Market Committee appears to have more room to surprise on the hawkish side compared to the European Central Bank”, and the forex markets seem to be in agreement (as does the bond market, given the overnight yield hike on 10-year treasury bonds).
While GBP/USD closed slightly higher yesterday, the pair dipped 40 pips to 1.237 in this morning’s Asia trading window.
Cable pulls back from mid-December highs – Source: capital.com
EUR/USD closed 0.25% lower and shed another 0.17% to 1.087 this morning, while the greenback also saw gains against the Japanese yen and Swiss franc, and the rest of the G10 bucket for that matter.
For some perspective, the US Dollar Index (DXY) is still down 2.7% year to date, and the trendline certainly points in the same direction, so the prospect of some short-term upside should take this into consideration.
Without any major catalysts on the UK and Eurozone economic calendars, investors should expect too much action on the EUR/GBP pair. For the moment, the pair is changing hands at 87.86p after closing 0.3% lower on Thursday.
7.49am: Strong bookings at On The Beach
Positive news from On the Beach Group plc which reported bookings in the first quarter of the fiscal year were higher than last year leaving the group with a healthier forward order book.
The online beach holiday retailer was updating investors ahead of its AGM later today.
“Although the first quarter (calendar Q4) is historically the quietest trading period, group total transaction value (TTV) for October, November and December 2022 exceeded the comparative months in fiscal year 2022” the company said.
Bookings since the Christmas period have also materially increased and whilst it is still very early in the year, group TTV since the start of the financial year to date is up 68% vs the equivalent period in the prior year.
The company reported growth across premium, long-haul and B2B expansion areas.
The balance sheet remains strong and investment has been ramped up to support the strong sales growth.
7.32am: Bestway swoops for stake in Sainsbury
Could we see a bid for one of the UK@s best known names?
J Sainsbury PLC said it will engage with Bestway Group in line with other shareholders after it was revealed that the family owned multi-national had taken a 3.45% stake in the grocer.
Bestway, which runs the UK’s largest independent cash and carry business, said it paid around £193.mln for the 80.8mln shares at a price of 239.4p each.
The company said it intends to hold the shares for investment purpose and isn’t considering an offer for the company.
“Bestway Group intends to hold its shares in Sainsbury's for investment purposes and looks forward to supporting the executive management team” it said in a statement, although it added it may make further purchases from “time to time.”
In response Sainsbury’s said: “We note the announcement made this morning by Bestway Group stating that it is not considering an offer for the company.”
“We will engage with Bestway Group in line with our normal interactions with shareholders.”
7.10am: New Rolls-Royce boss calls for transformation - FT
The new CEO of Rolls-Royce PLC has given a brutal assessment of Britain’s flagship engineering group telling employees it must transform the way it operates or it will not survive, according to the Financial Times.
The FT reported that in a global address to staff, parts of which were shared with the paper, Tufan Erginbilgic, warned that investors were losing patience with the FTSE 100 group.
“Every investment we make, we destroy value” he told employees, adding that financially “we undperform every key competitor out there.”
Rolls-Royce’s new CEO has warned the engineering group must transform the way it operates or it will not survivehttps://t.co/MdMKI2XMJw— Financial Times (@FinancialTimes) January 26, 2023
The stark appraisal was designed to pave the way for a shake-up at the group.
Speaking at the company’s Derby manufacturing site Erginbilgic who took over as CEO this month described the company as a “burning platform.”
He said the business needed to change fundamentally and that no business generating low returns should be in its portfolio.
"Rolls-Royce has not been performing for a long, long time, it has nothing to do with Covid, let’s be very clear. Covid created a crisis, but the issue in hand has nothing to do with it" he stated.
"Given everything I know talking to investors, this is our last chance" he said
7.00am: FTSE seen edging higher
FTSE 100 expected to open slightly higher on Friday after gains in the US following better than expected GDP figures.
Spread betting companies are calling the lead index up by around 7 points.
Wall Street rallied in afternoon trading as investors digested the release of gross domestic product data and another round of corporate earnings.
At the close, all three major indices were in the green, with the Dow pulling ahead 206 points at 33,949, a 0.6% gain; the S&P 500 up 1.1% or 44 points at 4,060 and the Nasdaq rocketing 1.8% to 11,512, up 199 points.
The focus in the US today another gauge of inflation, the PCE data, that is closely watched by the Federal Reserve.
Back in London and after yesterday’s bumper day of trading updates and results the company diary is looking quieter with a trading update from Paragon Banking Group PLC (LSE:PAG) the only major scheduled announcement.