The Only Way Is Up

Macro & Overnight

“The ultimate level of interest rates is likely to be higher than previously anticipated,” said Jay Powell to his congressional inquisitors yesterday.

This comment suggests a 50bp increase in the Fed Funds Rate at the next meeting.

The US yield curve is the most sharply inverted since the 1980s, with 2yr Treasury yield above 5%.

The prospect of a 6% policy rate by the end of this year cannot be ruled out.

The main impact of this has been a strong US$ rally.

UK Company News

Struggling consumer lender Amigo said conversations with potential investors to underwrite a £45m equity raise continue. However, the situation remains “extremely challenging”. It highlights the importance of balance sheet strength and the value of access to reliable finance in these uncertain times.  

Road transport infrastructure provider Hill & Smith recorded 14% revenue and profit growth. Its growth is significantly driven by its US businesses representing 64% of operating profit. The US is becoming the engine of the western world’s economic performance. 

Posh chocolate company Hotel Chocolat reported lower H1 revenue and profits as previously guided. It reflects a restructured approach to international growth. It saw strong sales performance from its UK stores and plans to add 50 locations over the next 3-5 years. The Velvetiser in-home drinking chocolate system continued its positive momentum with machines in 888k (1 in 17 ABC1) UK households. Its adapted plan for international growth is making progress. A new Japanese strategic partnership has been signed planning continues in the US. The company is trading in line with expectations for sales. However, as previously guided, it is cautious about consumer sentiment over the upcoming seasonal events of Mother’s Day, Easter, Eid and Father’s Day. Depending on the Easter performance, PBT outcomes range between £4m and £7m for the year. For FY24 and FY25, it expects to see a return to sales and EBITDA growth with a continued target of 20% EBITDA margin in FY25. There is much to like about the Hotel Chocolat brand value and ability to sell directly via a retail network and online. However, it has to adapt to a post-COVID world of higher costs and pressure on consumer discretionary spending. 

Restaurant Group reported an encouraging start to the year, and expectations for FY23 remain unchanged. It sees sufficient liquidity with c.£140m of cash headroom, making £110m of term-loan repayments during the year. Investors were probably looking for more from this set of results, given the public spat with activist shareholder Oasis. 

Prognosticator