Proactive Investors -
- FTSE 100 up 24 points at 7,535
- Boohoo falls after cutting revenue forecasts
- Burberry slips as UBS downgrades to sell
Burberry estimates too high, reckons UBS
The downgrade by UBS continues to weight on Burberry Group PLC (LON:BRBY) which is down 2.7%.
The Swiss bank noted it entered 2023 with high hopes for Daniel Lee's first collection.
“However, the increasingly challenging sector context, combined with so far muted reaction of the trade and consumer to the new brand aesthetics, means that the turnaround may have to be more costly to succeed,” the bank thinks.
UBS (LON:0R3T) said its said its discussions with selected wholesalers suggest its price point is too high for the targeted consumer, thus driving a reduction in orders y/y, while some of the social media trends also don't suggest any "hype" among the consumers.
It reckons consensus estimates are too high and has reduced its EPS forecasts for the 2024, 25 and 26 financial years by 9%/14%/15% which places its 9%/15%/17% below consensus.
It sees risks of earnings cuts and a de-rating and has moved to sell from neutral with a 1,614p price target, down from 2,285p before.
Insurers face ‘dynamic’ BoE stress test in 2025
The UK’s insurance sector’s ability to cope with a market crisis will be tested in 2025, in a similar fashion to the tests already faced by the banking sector.
The Bank of England said it will run a “dynamic” stress test for the general insurance sector in 2025, which will assess the industry’s solvency and liquidity resilience to a specific adverse scenario; assess the effectiveness of insurers’ risk management and management actions following an adverse scenario; and inform the Prudential Regulator Authority's supervisory response following a market-wide adverse scenario.
The dynamic nature of the 2025 exercise represents a significant change from previous exercises and will involve simulating a sequential set of adverse events over a short period of time, the BoE said.
The PRA intends to engage with the industry including trade bodies over the next six months, with a view to providing more details of this exercise during the first half of 2024.
Pound slides on expectations US rates will stay higher, for longer
The pound has a hit a six-and-a-month low against the US dollar this morning, dipping to $1.2082 this morning, a six and a half-month low.
The slide comes traders bet on US interest rates staying higher, for longer thanks to the strength of the US economy.
Yesterday, manufacturing data showed that America’s manufacturing sector was close to recovery, while last week’s jobless claims figures remained historically low.
The Federal Reserve indicated recently that it favoured one more rate rise this year while at the same cutting expectations for rate cuts in 2024, to two redictions from four previously.
On Monday, a number of Fed officials backed this viewpoint stressing the likelihood of rates staying higher for an extended period of time.
Meanwhile, in the UK, interest rates are seen to have peaked against a weaker economic backdrop.
That could encourage the US Federal Reserve to raise interest rates on more time this year.
In contrast, the Bank of England may have ended its hiking cycle, after leaving UK interest rates on hold last month.
The drop in the pound has also given a boost to the dollar earners in the FTSE 100, keeping it in the green.
Greggs shares fair value, store openings cut
Greggs (LON:GRG) has slipped 3.1% after its trading statement which showed strong growth in sales in the third quarter.
AJ Bell’s Russ Mould pointed out its ambitious growth strategy isn’t quite going to plan with a reduction in guidance for the number of net shop openings in 2023.
“Previously hoping for 150 net openings, the sausage roll king now expects between 135 and 145 net new sites,” he said.
“It’s hardly disastrous but gives investors something to grumble about,” he thinks.
But he added “achieving the new guidance would still be a record year for the absolute number of new shops opened, and planting new flags across the UK provides more opportunities to grow sales.”
Peel Hunt (LON:PEEL) said it was a “strong performance,” but viewed the update as “an interesting rather than view-changing statement.”
“The share trade on 20x current year PE, which is fair value in our eyes,” the broker said.
Shore Capital described it as “another good update from Greggs,” and believes that the stock merits a “premium equity rating” but as with Peel Hunt thinks the current share price represents “full and fair value.”
Both Peel Hunt and Shore Capital rate Greggs at hold.