Proactive Investors -
- FTSE 100 uip 3 points at 7,474
- Tesco (LON:TSCO) raises profit outlook, picks up market share
- UK bond yields at highest levels since 1998
UBS questions whether Vistry plan can be delivered
Vistry shares are down 5% today at 791p, hurt by a downgrade by UBS to sell from neutral.
The Swiss bank is cautious that the recently presented business plan can be executed because it assumes record volumes (>20,000) for any single UK housebuilder to have ever delivered at a record level of ROCE of 40%.
The broker thinks finding sufficient "capital light" development opportunities with PRS and affordable housing providers at that scale could be challenging, while current reported profitability levels are supported by fair value adjustments following M&A activity which it thinks overstates the economic returns to shareholders.
It also noted the plans include a high level of financial gearing with average net debt of £400 million and £700 million of lend creditors (highest gearing in the sector).
Added to a relatively high valuation, with the shares now trading at the top end of the sector range, UBS has taken a more cautious view.
On Tuesday, Jefferies lowered the stock to hold from buy.
Subdued start expected in the US
Across to the US now and it looks like a flat start, after heavy falls on Tuesday, as the market prepares for a further batch of economic updates.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.1% higher, while those for the S&P 500 rose 0.1%, and contracts for the Nasdaq 100 futures were flat.
Stocks fell sharply on Tuesday after robust jobs vacancies figures gave further credence to the belief interest rates will stay elevated for some to come.
Bond yields jumped once more and their trajectory will be closely watched again.
Deutsche Bank’s Jim Reid noted the last 24 hours saw the “relentless bond sell-off continue, with yields rising to fresh multi-year highs on both sides of the Atlantic.” Risky times, he said.
“If all that wasn't enough, the US House speaker Kevin McCarthy was ousted late last night leaving a leadership vacuum with large uncertainty as to how this will be filled ahead of the next government shutdown deadline of November 17th,” he added.
Today, the data driven Federal Reserve will have another indication as to the health of the jobs markets, plus a services sector reading.
Figures from ADP are expected to show the US added 153,000 private sector jobs in September, down from 177,000 in August, while the Institute for Supply Management’s purchasing managers’ index for services for September, is likely to fall to 53.6, down from 54.5 in August.
Factory order numbers are also due, and are expected to show an increase of 0.2% after slipping 2.1% in July.
Capital Economics still expects mild recession
Capital Economics is sticking to its call that the UK faces a mild recession due to the growing drag from higher interest rates.
The economics thinktank said while overall recent reports suggest the economy has lost momentum and may be dangerously close to a recession.
"We are sticking to our view that the growing drag from higher interest rates will generate a mild recession involving a 0.5% peak-to-trough fall in real GDP over the coming quarters," it said.
"While some measures of optimism have been improving, the majority of the survey evidence suggests the economy is weakening and the chances of the mild recession we have been forecasting have increased," it added.