Stock Market News Today 2018/08/21
Persimmon profits jump 13% with boost from Help-To-Buy
Persimmon, the UK’s second largest housebuilder, has posted a 13 per cent rise in profits for the first half of 2018 as the government’s Help-to-Buy scheme and low interest rates continue to support to demand for its houses.
The company reported pre-tax profits of £513.8m for in the first six months of the year, up from £459.4m over the same period last year, and group revenues of £1.84bn, a 5 per cent increase on last year. It had already reported revenues from new houses of £1.74bn for the period.
The average selling price of a Persimmon home rose by 1.2 per cent to £215,800, while forward sales of new housing over the six-month period stood 6 per cent higher than the first half of 2017 at £2.12bn.
Persimmon has found itself at the centre of a noisy row over pay for FTSE 100 bosses after it emerged its share price-linked bonus scheme put chief executive Jeff Fairburn in line for a payout of around £100m.
The company drew sharp criticism from politicians for paying large bonuses while benefiting from the government’s Help-to-Buy equity loan scheme, while one large shareholder called the level of pay “preposterous”.
Jeff Fairburn, chief executive officer, said: “We have continued to experience good levels of customer interest in our housing development sites as we trade through the quieter summer season. Customers are continuing to benefit from a competitive mortgage market and confidence remains resilient based on healthy employment trends and low interest rates.”
Euro, sterling higher after dollar falls on Trump’s Fed comments
The dollar lost ground and the euro and the pound firmed in Asia-Pacific trading after US President Donald Trump’s latest broadside against the Federal Reserve.
The dollar index, a measure of the US currency against a basket of peers, was down 0.5 per cent at 95.465, its weakest since August 9. The euro was up 0.5 per cent at $1.1534, while the UK pound added 0.3 per cent to $1.2836.
The dollar’s decline also pushed up the yen to its highest point in nearly two months, before the Japanese currency pulled back a bit to ¥110.04, flat on the day.
The moves came after the dollar dropped, stocks pulled back and bond prices rose in US trading on Monday following comments from Mr Trump to Reuters that he was “not thrilled” about the Fed’s decisions this year to raise interest rates.
Elsewhere in the currency markets, the New Zealand dollar was up 0.5 per cent at $0.6670 against the US dollar. The Australian dollar was 0.3 per cent higher against its US counterpart at $0.7358, after news that Australian Prime Minister Malcolm Turnbull survived a leadership challenge.
Sovereign debt markets steadied after a rise on Monday in bond prices, which move inversely to yields. The yield on 10-year US Treasuries was up 1 basis point at 2.833 per cent. The yields on Japanese and Australian bonds of equivalent maturity were unchanged at 0.084 per cent and 2.518 per cent, respectively.
Stocks to watch: NMC, Evraz, RBS, Just Group, Kaz Minerals
Competition is intensifying for Sage, says Deutsche Bank
● NMC Health, the United Arab Emirates-based hospital operator, hit a record high after delivering a better than expected 32 per cent increase in first-half earnings before interest, tax, depreciation and amortisation.
Goldman Sachs repeated “buy” advice, saying: “We view the results as positive given the strong performance in all of the group’s segments driven by (1) successful integration of acquisitions during the year and synergies from past acquisitions; (2) better than expected ramp-up of operations at newly established assets, namely NMC Royal Hospital [in Abu Dhabi]; and (3) better pricing seen across all healthcare divisions.”
● Housebuilders including Persimmon, Taylor Wimpey and Crest Nicholson were under pressure after Rightmove said asking prices on UK homes fell 2.3 per cent in August, the sharpest decline for the month since the Rightmove series began in 2011. Asking prices in London were down 3.3 per cent in August, said Rightmove, which weighed on Berkeley.
● Evraz led the miners and metals companies higher after Russian finance ministry played down worries of a possible windfall tax on the industry, saying such a levy would be “impractical”.
Anton Siluanov was quoted as saying on Friday that there would be “a discussion of additional tools to stimulate and create comfortable conditions so that additional profits received by companies as a result of the foreign exchange depreciation remained within the economy and are invested in development and creation of additional jobs”.
● Deutsche Bank downgraded Sage to “sell” from “hold” on competition fears. Conversations with customers and resellers suggest Sage’s niche supplying mid-market accountancy software is under attack from both sides, said Deutsche, which cut its target price to 540p.
“Entry-level players at far lower price points are moving upmarket and are building functionality either internally or through third-party platform partners,” it said. “Higher end competitors also appear to be gradually gaining share from Sage’s core user and reseller base. We would highlight Microsoft as the standout player here, with the Dynamics suite cited by Sage resellers as the most frequently seen competitor and furthermore, the Dynamics 365 SaaS [software as a service] suite grew at 56 per cent at constant currencies in the fourth quarter.”
● Citigroup upgraded Royal Bank of Scotland to “buy” from “neutral” with a 300p target.
“ RBS shares are down 18 per cent over the past three months, underperforming the European and UK banks, and are now back at 12-month lows. This comes despite excellent second-quarter results, including the first dividend in a decade. Consensus 2020 EPS is up 3 per cent over the same period.”
Based on proposed legal settlements Citi forecast RBS to have around £7bn of excess capital, or 24 per cent of its market value. Its base case was for £2.7bn to be returned via buybacks over 2019 and 2020.
● Investec upgraded engineer Hill & Smith to “buy” from “add” on valuation grounds with a £13.85 target. The upgrade follows a profit warning this month from the crash barrier maker, which was blamed on weather-related delays and higher zinc costs.
“While the first-half profit miss was disappointing, we view it as a bump in the road rather than as a barrier to future growth,” it said.
● RBC upgraded CVS Group, the veterinary services group, to “outperform” from “neutral”. CVS warned this month that snow in February and a lower than expected performance of some acquisitions had held back interim earnings.
“The recent share price reset, the second in a year for CVS, is likely going to test investor patience, but we think this could be an opportunity. Management will need to demonstrate that issues with recent acquisitions are short term in nature, but given the team have integrated over 450 practice acquisitions in circa 11 years we think it realistic they can.”
● Credit Suisse cut its target price on Just Group, the retirement investment specialist, to 94p from 125p and retained “neutral” advice. Draft proposals from the Prudential Regulation Authority for valuing Life Time Mortgages suggests Just Group needs to find £400m, or half its market capitalisation, to bolter solvency ratios, said Credit Suisse.
● Liberum upgraded Kaz Minerals to “hold” from “sell” on the back of the miner’s $900m purchase of a greenfield copper prospect in Russia from Roman Abramovich, which has seen shares plunge about 55 per cent since June. The broker left its price target at 460p.
“On our assumptions, the impact to net present value is fairly minimal, but we can understand why the market is repricing the company risk given that the investment proposition has changed so materially. Current investors do not want to be on this new journey, but others will eventually, assuming that the company take the appropriate steps to de-risk.”
● In brief: Kingfisher downgraded to “neutral” at Davy; United Internet upgraded to “buy” at HSBC; Boozt downgraded to “hold” at Berenberg.