August 28, 2018

Pegler’s market report – 28.08.18: Markets remain resilient despite mounting bad news

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (28.08.18) Business section under the title Pegler’s Market Report:

Markets remain resilient despite mounting bad news

Given the amount of bad news out there at the moment – from last week’s trade talks undermining tariff tit-for-tat between the US and China, the ominous clouds of a no deal Brexit, and Trump’s potential legal problems – the markets have done well to not lose their heads over recent days.

The pound was hit again as Brexit Secretary Dominic Raab said 9,000 more civil servants would be hired to deal with Britain’s departure from the European Union and Chancellor Philip Hammond disclosed that the Treasury was predicting that a no-deal Brexit would reduce UK GDP by 7.7pc over 15 years. The Chancellor also suggested the fall in GDP could be even worse if there was “short-term disruption”.

However, there was some good news on the government’s finances. Government borrowing was 40pc lower in the first four months of this financial year than in the same period a year ago, with the public finances showing a £2bn surplus in July. But the Office for Budget Responsibility (OBR) cautioned that the figures were flattered by one-off factors including the timing of payments to the EU.

The UK housing market remains weak, according to research by property website Rightmove. Asking prices were 2.3pc lower on average in August compared to July, and 3.1pc lower in London.

However, Persimmon posted a 13pc rise in first-half profits and said conditions in regional housing markets remain “supportive”. Pre-tax profits at Britain’s second largest housebuilder rose to £516.3m in the first six months of the year on the back of a 5pc increase in revenue to £1.84bn. Jeff Fairburn, Persimmon’s chief executive, said: “We have continued to experience good levels of customer interest in our housing development sites as we trade through the quieter summer season. Customers are continuing to benefit from a competitive mortgage market and confidence remains resilient based on healthy employment trends and low interest rates.”

The new owner of ailing DIY chain Homebase faces a tough battle to get the retailer back on its feet after newly-released documents revealed 70pc of its 241 stores were making a loss. Homebase, which changed hands for £1 in May, will bring back popular brands and products, such as Habitat and Laura Ashley, which was shunned by its former Australian owner Wesfarmers in a bid to reverse a 10pc slide in sales in the year to June.

The scale of the company’s challenges was laid bare in a new document given to creditors as part of preparations for a forthcoming vote on its turnaround plans. Homebase will close 42 of its shops and secure sweeping rent cuts on some others if it can persuade its creditors and landlords to approve a so-called company voluntary arrangement (CVA) deal next week.

The controversial insolvency process has become a common practice on Britain’s struggling high streets this year after several other chains including New Look, House of Fraser, Carpetright and Mothercare pursued similar deals.

By David Pegler, Brighton Capital Management