Market Prognosis

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

<< Back to Market PROGnosis archive

December 8, 2022

Recession fears predominate

Macro & Overnight

The S&P and Nasdaq extended losing streaks amid rising recession worries. This week’s risk-off sentiment remains hard to kick into touch as concerns about recession stay front and centre.

Investor attention moves to three central bank decisions next week. The Federal Reserve will announce its latest interest decision on Wednesday next week, with the Bank of England and European Central Bank to follow on Thursday.

News that China had made sweeping changes to its zero covid regime failed to lift sentiment in oil markets. Reports that gasoline inventories have increased sent prices lower.

European natural gas prices moved higher on the colder weather front moving across Europe, coupled with lower wind speeds.

News that Alphabet is to merge its Waze, Google Maps, and Google Earth operations into one unit demonstrate how much cost (and potentially people) there is to come out of Big Tech.

UK Company News

A trading update from Aferian indicates FY22 revenue and operating profit is in line with previous guidance, whilst net cash is slightly better. Progressive note here

Nick Train managed investment trust Finsbury Growth & Income, has delivered a compound annual return of 10.3% since 2000. In the second year of underperformance, the company said, “The year under review has seen significant price volatility and shifts in investors’ risk appetites as companies and markets were buffeted by a relentless series of economic and geopolitical shocks. ” Train said, “I have forborne from discussing macro-economic conditions in this report, though it is evident investors are currently thinking about little else. My reluctance to opine is primarily because I know that we, and I don’t believe anyone else, can really know what is in store. I do know two things, though. First, your portfolio is largely invested in substantive companies which have survived and thrived through similarly challenging episodes in the past. Second, all investors, indeed most people on the planet, must earnestly hope this wretched war in Ukraine ends soon. I ask you to conceive the boost to consumer confidence and government finances that would result from peace breaking out and the likely reaction of stock markets around the world. That is not a prediction for the company’s new financial year, but it is a sincere hope.” Amen to all of that. 

Professional sound equipment supplier Focusrite issued FY results. It has several measures to maintain margins through pricing actions, refinement of our routes to market and ongoing review of our production costs. For the current year, first-quarter trading has finished in line with expectations. Overall demand for the group’s portfolio of products has remained strong, and the company is optimistic about its prospects.

The company previously known as Sports Direct, Frasers Group saw revenue increase by 12.7%, mainly due to acquisitions. Its underlying revenue increased by 3.9%. Gross margins and cash flow from operations were both lower due to increased operating costs. However, EPS increased sharply due to its share buyback programme. The company guided in line.  

Recently IPO’d online fashion supplier In The Style announced that founder, Adam Frisby, will return to the CEO role on an interim basis. His replacement, who started in January this year, is leaving. The board also announced a strategic review of the group. In other words, it has put the for sale sign in the shop window or on its home page. 

Online travel provider On The Beach produced average booking values 31% higher than FY19, supported by a better mix. The group has begun FY23 with a healthier overall forward order book than the equivalent period in FY20. Simon Cooper, the Group’s Founder and Chief Executive Officer, will step down from his role within the next 12 months. They also warn that the visibility of the UK outbound travel industry remains tricky given the current macroeconomic environment. 

Troubled online estate agent Purplebricks said that it is on course to meet full-year expectations. This turnaround plan is being delivered at pace, but it has been tried before. 

ITV and STV today announce an enhanced strategic partnership around content sharing and advertising sales that creates incremental digital value for both companies and aligns their interests in the streaming age. ITV’s sales team will take responsibility for selling all digital VOD and simulcast advertising inventory on STV Player from 2023. This move immediately extends ITV’s sales reach and allows STV to benefit from ITV’s unrivalled scale in the UK market. Devolved Scottish independence with mutual advantages to both sides, politicians take note. 

If you are ESG unfriendly, you must make the most of all the good news you can find. ESG hated thermal coal miner Thungela proclaimed in the first line of its trading update that it was proud that it had operated “fatality-free” for the year to date. It also said that “demand for energy, including thermal coal, remained firm into H2 2022 given continued supply constraints coupled with the need for energy security globally. The Benchmark coal price has averaged $276.57/tonne for the year, compared to $124.11/tonne for FY 2021.” Thungela shares have risen nearly 4x over the course of 2022. However much we try, the world can’t kick the habit of burning hydrocarbons. 

Prognosticator 

 

 

On this day ...

… in 1941, US and Britain declared war on Japan, and the US entered World War II after Japan bombed Pearl Harbour.

This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close.