February 14, 2017

Pegler’s market report – 14.02.17: UK not just reliant on services and consumer spending

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (14.02.17) Business on page 21 under the title Pegler’s Market Report:

UK not just reliant on services and consumer spending

Another decent round of UK data this time covering manufacturing, construction and trade pointed to a strengthening economy not just reliant on services and consumer spending.

The US markets continued hitting record highs as US President Donald Trump promised to unveil a major tax announcement to lower the burden on businesses. Trump’s comments have shifted focus away from the bubbling political concerns in Europe and back to his campaign pledges of fiscal stimulus.

Trump also catapulted airlines to new heights as he met with airline executives. The US President questioned an out-of-date US air traffic control system.

It wasn’t a ‘bed of roses’ for all of the travel stocks – Thomas Cook suffered sharp declines, as it remained cautious on its outlook for the rest of the year due to growing political and economic uncertainty. More than a fifth of its shareholders also rebelled over its executive pay policy.

Investors lost their appetite for online takeaway service Just Eat after chief executive David Buttress resigned. Buttress launched Just Eat’s UK business in March 2006 and became chief executive in 2013 when the company went public. Since then, shares in the mid-cap group have more than doubled.

Just Eat is currently in the process of buying UK rival hungryhouse and integrating SkipTheDishes in Canada. The move couldn’t have come at a worse time given that competition has significantly intensified, since Uber and Amazon’s entrance to the market.

The volume of new houses being built is still way behind the numbers needed to meet the government’s targets and solve the housing crisis, and although last week’s Housing White Paper made some bold statements of intent, there was little on streamlining and simplifying the planning process and opening up more land to kick-start the housebuilding programme.

Nationwide has suffered a plunge in buy-to-let lending and a drop in profits as Government measures to crackdown on landlords and rock bottom interest rates take their toll on the country’s biggest building society.

Elsewhere, housebuilder Redrow posted a very strong set of half-year results. Pre-tax profits were up 35pc to £140m in the six months to 31 December, and the dividend was increased 50pc to 6p a share.

The company reported a 13pc rise in completions, a 12pc increase in average sales price and a significant improvement in operating margin.

With confidence high, Redrow has set targets for 2019 of £1.9bn revenue, a 19.5pc operating margin and 77p earnings per share.

Despite the strong results, potential negatives for housebuilders could make life tougher in the coming year. These include a reduction in consumer confidence as inflation increases and possible interest rate rises.

By David Pegler, Brighton Capital Management