May 8, 2018

Pegler’s market report – 08.05.18: A lift from Apple

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (08.05.18) Business section under the title Pegler’s Market Report:

A lift from Apple

It seems all that was needed in the markets was a lift from Apple to get everyone hitting their ‘buy’ buttons again. Apple reported earnings per share (EPS) of $2.73, 5 cents ahead of the consensus of $2.69. 2Q revenue of $61.14Bln which was in-line but they did guide 3Q revenues above the consensus. iPhone shipments were 52.22Mln or 6.71 iPhones per second of every minute of every day for the last 90 days! iPad sales were 9.11MLn, Mac sold 4.08MLn. The company announced a new $100Bln share repurchase programme and a 16pc increase in its quarterly dividend.

Sainsbury’s confirmed that it has agreed terms with Walmart for a merger with Asda. The combination would create a new retailing superpower with a market share of just over 30pc, eclipsing Tesco’s 28pc.

Sainsbury’s also reported its full-year results, with like-for-like sales growth of 1.3pc, excluding fuel. Underlying profit before tax increased 1.4pc to £589m, with profit in the second half of the year rising 11pc, while the full-year dividend was unchanged at 10.2p.

Under the proposed merger, Walmart will receive £2.98bn in cash and 42pc of the combined business, valuing Asda at £7.3bn. Importantly, US-based Walmart has agreed to hold no more than 29.9pc of the total voting rights in the combined business.

The strategic motivation for the deal is mostly based on enhancing purchasing power. Sainsbury’s has a bigger presence in London and the South East, while Asda is more active in the North of England. Sainsbury’s is also strong in e-commerce – especially after its 2016 acquisition of Argos – and convenience, both areas in which Asda is weak.

There are competition concerns, though the Competition and Markets Authority (CMA) will base its decision on local markets. The CMA will consider the presence of competitors in a 10 to 15 minute drive time of the supermarkets’ stores.

Tens of thousands of British homeowners are trapped in expensive mortgages which they took out before the financial crisis because of new rules stopping them moving to better value loans.

There are 30,000 such “mortgage prisoners”, the Financial Conduct Authority (FCA) revealed, who, thanks to low interest rates, could each save thousands of pounds in repayments each year – if only they could re-mortgage.

The City watchdog is looking for ways to help these borrowers, who are all up to date on their mortgage payments, but it is difficult without undermining its own rules.

Despite the slightly softer job figures from the US, economists still believe that the Federal Reserve on track to next hike rates in June. Most believe the US central bank isn’t going to be too troubled by the slight dip in wage growth and will raise interest rates a total of four times this year.

By David Pegler, Brighton Capital Management