Next Week in the Market 27th – 31st May 2013

Posted on by

Charles Stanley’s award-winning Private Client Research Team present a look at what is coming up next week on the markets, who is reporting and what to look out for.

Next week’s reporting highlights include: 

Kingfisher – has the first quarter been as bad as the weather?

Severn Trent – all eyes on takeover prospects

Tate & Lyle – are higher commodity costs biting?

 

Thursday

First-quarter trading update from Kingfisher, the world’s third-largest home improvement retailer.  The company last updated the market on 26 March, when it reported a weak set of full year results.  The share price was broadly flat on the statement, but has advanced by 17% since.  Market expectations are for dividend growth of 5% this year, predicated on subdued sales growth, a flat operating margin and broadly unchanged interest charge.  Attention next week will focus on trading performance and comments regarding the outlook; the share price level suggests that investors expect trading in the company’s key markets to remain subdued but resilient over the medium term.      

Full-year results from Severn Trent, mainly a regulated water company operating in the Midlands and Wales. The company last updated the market in February, when it confirmed full-year earnings expectations and reiterated that revenue at SVT Water remains ahead of last year due to price rises, but offset by lower commercial volumes and higher costs. The share price barely moved on the statement but has soared since in response to a takeover bid, which Severn Trent has rejected. Market expectations are for dividend growth of 8% this year, based on a commitment to growth of RPI+3% to 2015. Attention next week will focus on operational performance at SVT Water and the outlook for the smaller non-regulated business SVT Services, where early signs of improvement continue to be offset by investment.  The share price level suggests that investors believe the consortium will return with a higher offer and not be deterred by the next regulatory price review.

Full-year results from Tate & Lyle, provider of ingredients to the food, beverage and other industries.  The company last updated the market in March, when it released a year-end trading update reaffirming modest progress over the prior year; the share price dipped slightly on the statement but has risen since.  Market expectations are for dividend growth of c. 5% this year, thanks to good revenue growth.  Attention next week will focus on input prices, sucralose sales and on progress being made on restructuring aimed at improving returns in Speciality Foods; the share price level suggests that investors are concerned over the potential impact of high commodity costs.

This report was compiled by Charles Stanley’s dedicated Private Client Research Team comprising:

Jeremy Batstone-Carr (Head of Private Client Research)

Nic Clarke (Banks, Insurance, Other financials)

Tony Shepard (Travel, Support Services, Oil)

Tom Gidley-Kitchin (Construction, Household Goods, T&T, Mining)

Sam Hart (Retail, Leisure, Media Beverages)

Tina Cook (A&D, Utilities, REITs and Tobacco)

Rae Ellingham (Pharma, Food Producers, Industrials)

FTSE-100: Our Chartist’s View

Posted on by

FTSE-100 (6696.79) experienced its worst one-day performance in almost exactly a year as traders took fright at the latest data from China (which seems to suggest that its economy is no longer expanding), sharp overnight falls in the Far East and fears that the latest comments from Fed Chairman, Ben Bernanke, mean that the US central bank will begin tapering its bond purchases sooner (i.e. before the end of the summer) rather than later. The FTSE fell by just over 2% in busy trade and it is obviously no coincidence that the magnitude of the decline had much to do with the fact that the previous session’s final reading was its second highest ever, and less than 100 points below its all-time peak.

After a shaky start US stocks recovered their poise quite quickly yesterday and ended the session with minimal losses, so European stocks should see a decent bounce this morning. However, there are now good reasons for believing that global stocks are now heading into a period of heightened sensitivity to news-flow, the corollary of which is almost certain to be increased volatility. While we are still in a phase where a spike higher, to new highs, remains a possibility we are also in thrall to events going on elsewhere – the Chinese slowdown, the spike in Japanese bond yields, the musings of Fed members – and one of which could knock the UK index. With that in mind I would suggest that the key level for the FTSE is now 6530 or so (i.e. the March peak), a breach of which would send a very negative signal.

Commodities: Week in a Minute

Posted on by

Commodities: 

Diamonds: The main news this week in diamond-land has undoubtedly been the acquisition of the “Harry legacy” for $26.7m. Swatch, the new owners of Harry Winston, announced themselves with the purchase of the 101.7ct pear-shaped Type IIa, flawless, D colour stone and set a record for the highest price paid for a colourless diamond at the same time. The sale was part of an auction by Christies that raised around $102m whilst in the same week, Sotheby’s magnificent jewels sale totalled nearly $80m, showing that the market for good quality jewellery remains buoyant. Diamond prices have been well supported this week, as polished prices recover some of their recent weakness.

Precious metals: South Africa has again grabbed the headlines for all the wrong reasons this week. Concerns over further labour unrest has caused the Rand to depreciate and CDS’s to rise. A modicum of relief was seen today as Amplats avoided the disruption seen at Marikana, but most believe that the upcoming wage negotiations will be impacted by further unrest. This is likely to provide a short term boost to palladium and platinum prices short term, although any positive impact on gold pricing is likely to be minimal. Despite outperforming gold by 22% and 13.5% in 2013, our positive stance towards palladium and platinum, predicated on increasing global demand and declining supply, remains in place, although no one should ever be ashamed of banking a profit! 

Base metals: A much quieter week for the base metals, with minimal movements for all except nickel. Our long-time caution over the metal remains in place, even after the near 2.5% decline in the week to below $15,000 a tonne, that many believe is the marginal cost of production for many global producers. As noted last week, stocks continue to rise, so without a significant pick-up in demand any recovery is likely to be subdued at best. The recovery in copper prices has been welcomed, although sadly a move back towards $7,000/t is increasingly likely short term.

Specialities: Arguably one of the more interesting announcements this week has been the approval of two bills by the Natural Resources Committee in the U.S. The bills aim to speed up the approval and subsequent production of minerals deemed to be of strategic and critical importance, such as rare earths. Rare Earth projects are notoriously slow in coming into production, as MolyCorp will testify, so any assistance in developing a new industry should be welcomed. In pricing terms, not much has happened this week, but considering recent weakness, maybe that should be seen as a positive.   

This report has been compiled by Kieron Hodgson, Commodities Analyst at Charles Stanley Securities. For further information, please contact Kieron on 020 7149 6939 or email: Kieron.hodgson@csysecurities.com