March 7, 2017

Pegler’s market report – 07.03.17: Snap, crackle and pop

As published in the Brighton Argus (07.03.17) Business on page 21 under the title Pegler’s Market Report:

Snap, crackle and pop

Snap was heavily in demand as the shares took off on their first day of trading in New York, after the owner of the popular Snapchat messaging app raised $3.4bn in its initial public offering (IPO), above its price expectations.

Shares traded hands at up to $25 plus at one point, after the IPO priced last Wednesday at $17 per share. The IPO book was oversubscribed by more than 10 times, boosting the chances of a crackle and potentially a pop on the first day of trading. This gives the newly listed company a market value of $24bn., more than double the size of Twitter and the richest valuation in a US tech IPO since Facebook.

With no sign of Snap making a profit, no voting rights and some investors choosing to lock themselves in for 12 months there is a sense that this company needs to achieve the success of Facebook, Amazon, Google and the likes to provide investors with any decent long-term value.

Back on home turf, shares in Merlin Entertainments dipped a little despite Alton Towers owner posting a rise in pre-tax profits. Statutory pre-tax profit rose by roughly 17pc to £277m last year, although like-for-like cash profit dropped 3.6pc. Revenue hit £1.47bn thanks to visitor numbers rising to 65.1m.

Cash profits in its Midway division, which includes Sea Life centres and London Dungeons, declined 4.7pc on a 52-week comparative basis to £224m but the picture was more upbeat for Legoland Parks, up 0.5pc, and Resort Theme Parks up a whopping 28.1pc.

Agent Provocateur is expected to fall into administration although a possible lifeline may come via Sports Direct through a controversial pre-pack deal. A quick sale to the retail giant raises fears for 600 jobs at the stricken underwear chain. Sports Direct’s interest was personally overseen by founder Mike Ashley, who is desperate to take his retail empire more upmarket amid flagging sales. The entrepreneur recently snapped up a stake in French Connection.

Global markets continued to strengthened as Donald Trump delivered an optimistic first speech to the US Congress, including a call for a $1tn (£800bn) infrastructure package. His tone was upbeat as he sought support to fund a “new chapter of American greatness” and said that “the time for small thinking is over”.

Meanwhile in the UK, January was the best month for mortgage approvals since well before the Brexit vote, according the Bank of England, further evidence of buoyancy in the housing market despite fears of slowing economic growth. In total, nearly 70,000 loans for house purchase were approved in January, the largest number since February 2016. Unsecured lending to consumers also rebounded after December’s fall.

By David Pegler, Brighton Capital Management