September 20, 2016

Pegler’s market report – 20.09.16: Market has a bit of a wobble

As published in the Brighton Argus (20.09.16) Business on page 21 under the title Pegler’s Market Report:

Market has a bit of a wobble

It has been another week of market wobbles – banking stocks have faltered following the announcement that the US Department of Justice has asked Deutsche Bank to pay a hefty $14bn for mis-selling mortgage-backed securities. A number of other financial heavyweights fear they could have an equally hefty bill.

Retail stocks were back in the spotlight as supermarket chain Morrisons reported its first rise in half-year profits in four years. Evidence of a turnaround at the Bradford-based group spurred a bit of a rally sector-wide. Next shares behaved less well, after it said trading had been “challenging” in the first six months of the year. It retained its full-year sales guidance despite the volatility, delivering half-year pre-tax profits of £342m.

RSA Insurance had a strong week, as trading volume hit monthly highs. Some speculators hinted of an incoming bid whilst others simply suggested the share price reflected that “the recovery process is underway”.

Biffa, the waste management business, has announced plans to raise £270m in the biggest UK flotation since the vote to leave the EU. The 104-year-old company’s initial public offering (IPO) will value it at a reported £1bn or more. Biffa, which has an annual turnover of £927.5m and employs more than 7,000 people, is Britain’s second-biggest waste management company and has contracts with many local councils. It collects, processes and disposes of 6.6m tonnes of waste and recyclables for more than 95% of UK postal codes and 2.4 million households.

The Bank of England (BoE) has left rates unchanged this month, but said its likely to cut interest rates to just above zero later this year. The Monetary Policy Committee’s nine rate-setters were unanimous in their decision to keep the UK bank rate at its new record low of 0.25pc, its lowest in the BoE’s 322-year history.

Talking of history, 8 years ago, last Thursday, Lehman Brothers filed for bankruptcy. On 14th September 2007 Lehman’s share price stood at $59.50, valuing the share capital at $41 billion. When Lehman went down the share price was a derisory 21 cents. The financial heavyweight filed for bankruptcy with $639 billion in assets and $619 billion in debt, making it the largest bankruptcy filing in history.

By David Pegler, Brighton Capital Management