SVB – The Consequences
Macro & Overnight
The aftermath of the collapse of SVB continues to dominate headlines. Banks’ stocks remain volatile globally, and markets are in risk-off mode.
Attention will focus on US inflation data today with fears that the Fed has stepped back from its task on rate rises prematurely to restore financial stability and run out of bullets in its fight against inflation.
The US response to SVB effectively insures all US bank deposits regardless of size, and the Emergency Lending Facility is similar to the Troubled Asset Relief Program from 2009. and much like the BoE’s response to last year’s LDI crisis. It is QE by another name.
This Uturn represents a round trip from The Only Way Is Up for US rates only a few days ago. Ken Griffin, the founder of Citadel, said the US central bank’s rescue package for Silicon Valley Bank shows that American capitalism is “breaking down before our eyes.” So nothing to really worry about, then?
UK Company News
Close Brothers reported half-year results significantly impacted by the increased provisions concerning litigation loan provider Novitas. The loan book excluding Novitas was £9.0 billion (31 July 2022: £8.9 billion). The lender is confident it can resume its earnings growth and returns track record by focusing on disciplined growth, cost efficiency and capital optimisation.
Contractor Costain reported FY adjusted revenue growth of 20.6% and free cash flow of £72.9m (FY21: £53.1m). Its order book of £2.8bn (FY21: £3.4bn) gives visibility for FY23 with more than £1.0bn of revenue already secured, representing around 80% of expected revenue. It expects to deliver an adjusted operating margin run rate of 3.5% during FY24 and 4.5% during FY25. This aligns with its ambition to have margins above 5%. It remains confident in the Group’s strategy and longer-term prospects.
SaaS technology company Eagle Eye reported H1 revenue growth of 37% and profits up 48%, with net cash up 216%. It saw continued growth in ARR, providing good visibility on profitable growth. Trading since the Period end has continued to be strong, providing the Board with confidence in delivering another year of profitable growth, with revenue and adjusted EBITDA for the year ended 30 June 2023 now expected to be comfortably ahead of current market expectations.
Music and audio products group Focusrite updated for H1. It said that gross margins had improved as freight costs had reduced to more normalised levels, component shortages and supply chain issues were easing, and pricing actions were taking effect. Profits for the Group align with Board expectations and remain unchanged for the year.
Microlise announced the acquisition of Vita Software for £2m. This move expands Microlise’s suite of transport technology solutions and will enhance earnings immediately.
Silverwood Brands’ dispute with Lush Cosmetics is heading towards litigation, as it announced plans to resolve their differences over the transfer of shares in Lush to the ownership of Silverwood.
Prognosticator
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