Market Prognosis

A concise summary of the major macro events of the past 24 hours, and selected UK company-specific news.

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November 20, 2023

Poor governance costs Microsoft dearly

Macro & Overnight

Sam Altman’s sacking and rumoured reinstatement at Open AI generated several column inches over the weekend. The episode revealed that Microsoft invested $13bn in a company with woefully inadequate governance. Friday’s abrupt announcement of his departure wiped $50bn off Microsoft’s market value, raising questions about the tech giant’s undue haste in funding Open AI. Satya Nadella, the Microsoft CEO, no doubt had a busier-than-usual weekend.

Energy prices have firmed up after last week’s sharp fall. Bond yields and the almighty dollar remain lower, with the £ heading to the $1.25 level ahead of the UK’s Autumn Fiscal Statement on Wednesday. Jeremy Hunt has had a busy few days fueling speculation about possible rabbits to pull from his hat. However, it is most likely that the big rabbits will have to remain hidden until March.

In the US, we get the FOMC minutes tomorrow and durable goods data on Wednesday.

Argentina took a leap into the unknown yesterday by electing the chainsaw-wielding libertarian Javier Milei as president. Milei has campaigned to close the central bank and dollarise the economy. They say there are four different types of economies: developed, developing, Japan and Argentina. Argentina is a perennial economic underachiever, and its electorate has voted for a dramatic roll of the dice.

UK Company News

In the UK, the M&A season remains in full swing, with a Halfords merger with Redde Northgate floated in the weekend press and Music Magpie revealing that it is in talks to be acquired.  

Cerillion, the telecoms software supplier, reported FY revenue up 20% to a record £39.2m with a record £52.5m order book and net cash up 22% to £24.7m. It said its revenue visibility is underpinned, leaving Cerillion well-placed to deliver another strong performance this year and beyond. 

McBride, a manufacturer of own-label household products, reported that it continued to trade ahead of expectations in October and early November due to the continuing consumer shift to value, driving demand for private-label products. With only four months of the financial year, the Group remains alert to the possible risk to its full-year outcome. 

These two sets of results highlight the difference between long-term growth and value. McBride has a price-to-earnings ratio of about 3.5x, while Cerillion’s is more like 26x. One has an order book and sales pipeline that is a multiple of its annual revenue, while the other remains unsure about the outcome for the current year having to juggle with shifting demand patterns and volatile raw material input costs.  



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