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Market Blog: Standard Life tops a brighter FTSE 100
Britain’s FTSE 100 and European stock markets rise as core eurozone growth beats ecomomists' predictions.
- Standard Life and 'bid target' United Utilities lead FTSE higher
- European markets rise on German economic resilience and stimulus hopes
- Bid speculation lifts water companies
- SuperGroup shares dip as co-founder resigns
- Standard Life leads FTSE 100 higher after upbeat financial report
- US retail sales data point to upturn in consumer spending
17.00: Britain’s FTSE 100 regained strength as the German and French economies proved more resilient than expected against the eurozone crisis.
The FTSE 100 added 0.56%, or 33 points, to 5,865 and the Mid-250 index took on 0.59%, or 47 points, to 11,478.
Standard Life (SL.L) jumped 20.7p, or 8%, to soar to the top of the FTSE 100, after it reported a 15% increase in operating profit in the first half of the year and increased dividends by 6.5% to 4.9p.
Water company United Utilities (UU.L) rose 33.5p, or 4.9%, to 722.5p following rumours that it could be a bid target.
European stock markets also rallied as economic growth in France and Germany, core eurozone countries, was better than expected in the second quarter at 0% and 0.3% respectively.
Germany’s DAX index gained 0.94% to 6,974, France's CAC 40 index added 0.7% to 3,450, and the FTSEurofirst 300 index of top European shares ticked up 0.58% to 1,101.
Standard Life and 'bid target' United Utilities lead FTSE higher
15.01: Is US consumer spending rebounding? Certainly in July it did, with a Department of Commerce report showing a 0.8% increase in retail sales in the month, the first rise in four months.
Here’s what the economists had to say:
Christoph Balz of Commerzbank: ‘The report should alleviate concerns that growth is dropping off sharply. While private consumption is not as weak as the slowdown in the second quarter suggested, one should also not extrapolate the strong rise in July. In sum, the US economy remains on a moderate upward trajectory.’
Julia Coronado of BNP Paribas: ‘The July bounce back does ease concerns that consumers were in full retrenchment mode… this leaves Fed policymakers with a bit of a conundrum, markets have rallied in large part from expectations for policy easing, yet the data are not suggesting an urgency for action. If they choose to wait and see they may lose progress in easing financial market conditions and boosting confidence. They will continue to "closely monitor incoming information".’
James Knightley of ING: 'The better jobs numbers and lagged effects of gasoline prices are probably helping sentiment a little, but the “fiscal cliff” and European uncertainties are likely to keep the Federal Reserve wary about the future.'
Chris Williamson of Markit: ‘US retail sales perked up in July, but the three-month growth trend is still the weakest for almost three years, meaning further gains are required in coming months to instil more confidence that this is a genuine improvement in underlying consumer demand.’
While a separate report on US PPI inflation was more mixed, the forecast-beating retail sales data provided support to US markets, which opened slightly higher, following gains in Europe.
Water companies boosted by bid reports
14.21: Water companies are rallying on speculation that a consortium could be planning a bid for United Utilities (UU.L).
According to a report in the Daily Mail:
'Rumours doing the rounds suggested that an international infrastructure consortium including Ontario Teachers, the Canadian pension fund, and Qatari and Abu Dhabi funds, are working on a break-up bid for UU which would value the Warrington-based group at £6.1billion or £9 a share.’
Alternatively, according to other news sources, China Investment Corporation (the sovereign wealth fund) or private equity house Kohlberg Kravis Roberts may be the ones eyeing up United.
As analyst Tina Cook of Charles Stanley notes, ‘overseas investors and infrastructure funds have been attracted to regulated utilities due to their stable and relative-low risk revenue streams’.
United Utilities is rallying in response, with shares at the top of the FTSE 100, up 6% to 730p.
Several commentators are sceptical about the silly season speculation.
Cook adds: 'There can be no guaranteed that a formal bid will materialise and low volumes in thin markets mean bid speculation tends to provoke share price spikes on slow news days. Given our long standing positive stance on the sector, those investors sitting on large profits may wish to take advantage of the strong intraday share price movement to lock in some gains.'
Markets weather storm of weak European economic data
10.11: Markets are holding onto their gains amid a flood of European economic data:
• GDP fell by 0.2% in both the eurozone and the wider European Union during the second quarter of 2012, official figures show. This was as expected by economists.
• Industrial production fell by 0.6% in the euro area and by 0.9% in the EU in June 2012 compared with May 2012.
• In Germany, where this morning we learnt that economic growth was stronger than expected in the second quarter of the year (see market post at 08:05), analyst sentiment dropped for a fourth straight month in August, the closely watched ZEW poll showed. Sentiment collapsed to -25.5 in August from -19.6 in July.
• In the UK, inflation figures have shown a surprise rise to 2.6% in July. Read our full story here.
• The Office for National Statistics has also reported a 0.5% increase in UK house prices month-on-month in June, having been flat in May.
Supergroup shares dip as co-founder resigns
09.05: Don’t sell Supergroup (SGP.L) shares! That was the message from analysts this morning as the fashion retailer announced that Theo Karpathios, a co-founder and chief of wholesale and international, has resigned.
‘There is nothing sinister in this resignation,’ said Freddie George of Seymour Pierce, who says Supergroup shares are significantly oversold and a ‘buy’.
Rather, the news reflects the recent recruitment of Susanne Given as chief operating officer and Shaun Wills as finance director, who will ‘tidy up the many international distributor, agency and licence agreements with a view to improving profitability’, George reckons.
Analysts at Oriel agreed that the move was evidence that Wills and Gaven were ‘shaking things up’ at Supergroup. ‘This, in our view, is a positive, although Mr Karpathios will need to be replaced as soon as possible,’ noted the Oriel analysts as they stuck with their ‘hold’ recommendation on the shares, though they warned that the company ‘has a long journey ahead of it to rebuild management credibility’.
With Karpathios owning 15% of shares in Supergroup, the price could be held back though by the risk of a ‘stock overhang’, the Oriel team warns. This is when a large block of shares are suddenly sold in one go, putting downward pressure on the price.
Supergroup shares are down 0.7% this morning at 435p.
Standard Life upbeat on the future
08.26: A 15% rise in Standard Life (SL.L)'s pre-tax operating profits in the first half of 2012, alongside a fairly upbeat outlook statement in the face of ‘challenging’ conditions, has helped the insurer’s shares rise to the top of the FTSE 100 this morning.
‘We have delivered increased profits, cash flow and dividends,’ boasted David Nish, chief executive of the Edinburgh-based insurer and asset manager, presenting results showing a 6.5% rise in the interim dividend to 4.9p and a forecast-beating operating profit of £302 million, which benefited from particularly strong UK growth.
Standard Life said: ‘Overall, whilst the market environment is challenging and those conditions look set to continue, our business model, leading market positions and strong balance sheet, will allow us to continue to deliver ongoing improvements in value for customers and shareholders.’
Shares are up 6.1% at 272p. Analysts at Oriel Securities retained their 'add' recommendation on the shares.
Markets lifted as German economy clings onto growth08.05: European stock markets have started higher after economic growth numbers for France and Germany both came in a smidgeon better than the market expected, in a key test of eurozone economic strength.
The French economy was stagnant for a second straight quarter, but this was better than the 0.1% contraction expected. Germany grew by 0.3% in the second quarter of the year, better than the 0.2% expected, but down from 0.5% growth in the first quarter.
Minutes from the latest policy meeting by the Bank of Japan also gave a small boost to markets, showing that the Japanese authorities were prepared to act to stimulate markets.
The FTSE 100 opened up 0.5% higher at 5,864, while the Eurofirst 300 also rose 0.5% and the French Cac climbed by 0.6%. The euro is up 0.2% to $1.2357.
Carsten Brzeski of ING Bank commented: ‘The German economy has once again escaped the technical recession many other Eurozone countries are currently experiencing with no more than a fright. In fact, the economy remains the stronghold of the eurozone. However, another strong quarter merely glosses over the fact that even the stronghold has already caught the euro crisis virus.’
The GDP figure for the eurozone as a whole is due later this morning, alongside a clutch of other European economic data. ‘Despite the better-than-expected data from France and Germany, the euro area economy as a whole is still likely to have contracted on the quarter,’ said Grant Lewis of Daiwa Capital Markets.
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- Standard Life PLC (SL.L)
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- United Utilities Group PLC (UU.L)
- Pennon Group PLC (PNN.L)
- Severn Trent PLC (SVT.L)
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