May 1, 2018

Pegler’s market report – 01.05.18: Better news for the technology sector with impressive results

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (01.05.18) Business section under the title Pegler’s Market Report:

Wall Street is buzzing over Amazon’s impressive March quarter results. Analysts are growing more confident over the prospects for many of Amazon’s new businesses including subscription services, advertising and cloud computing.

The e-commerce juggernaut reported better-than-expected first-quarter earnings results. It also gave profit guidance for its second quarter significantly above Wall Street expectations. Several analysts expressed optimism over the company’s Amazon Prime price hike. The company announced on it plans to increase the price of its annual Prime membership to $119 from $99 starting on 11^th May.

There was more upbeat news from the technology sector – Facebook’s Q1 beat estimates on strong advertising revenue. Analysts were positive on both daily and monthly average users given the concerns of a negative impact from Cambridge Analytica. None appeared, and the stock rose strongly post the report. Ahead of core stock Intel’s upcoming report, there was a positive read-through for semiconductor companies such as Advanced Micro Devices and Xilinx where revenue and guidance beat the consensus. Payments company PayPal also beat its quarter estimates and then raised full year guidance above-consensus.

Following suit, shares of Expedia took off after the company reported better-than-expected quarterly sales and a sharp increase in booking volume. The company reported a 15pc year-over-year increase in first-quarter bookings, boosted by its HomeAway, Expedia and Hotels.com brands. This news was well received, as earlier in the week shares of Expedia had fallen after Trivago, which is majority owned by Expedia group but listed separately on the Nasdaq, missed analysts’ expectations for the quarter.

Back onto home turf, Whitbread has announced plans to spin off Costa, the UK’s biggest coffee chain. The hospitality group, which also owns Premier Inn, plans to list Costa on the stock market as an independent business. The move, aimed at “optimising value for shareholders”, is expected to take up to 24 months. Current Whitbread investors will receive shares in the separate entity. A couple of high profile hedge funds had been pushing the company for a break-up. Announcing the spin-off alongside the group’s full-year results, Whitbread chief executive Alison Brittain said: “We are confident that both Premier Inn and Costa will soon be businesses of sufficient strength, scale and capability to enable them to thrive as independent companies.” Whitbread’s underlying pre-tax profits rose 4.5pc to £591m on sales of £3.3bn in the year to March.

With the reporting season providing some good cheer markets regained some of their recent losses and moved ahead.

The economic picture was less rosy as UK growth fell to a five-year low in the first quarter of 2018, reducing the possibility of an interest rate rise in May. UK consumer confidence declined in April, marking the 28th consecutive month in negative territory despite an improved outlook for wage growth and employment, according to a recent survey.

By David Pegler, Brighton Capital Management