The Week in Perspective 16 August 2016

The Week in Perspective 08 May 2018

Brewin Dolphin Research

Market Roundup Chart 1: UK balance of trade: current account balance The stock market enjoyed another good run this week, with its sixth successive day of gains on Thursday providing the longest winning streak in 18 months.

Monday saw the FTSE 100 close above 6,800, its highest level for more than a year, as commodity stocks benefited from a rise in the oil price while post-Brexit fears were calmed by a survey showing consumer spending increased in July.

Barclays was a strong performer after BNP Paribas upgraded the bank to “outperform”, and Meggitt also did well after influential investors Elliott Capital Advisors took a stake in the firm, pushing up shares by 8.8%.

On Tuesday the FTSE 100 was up a further 0.6% despite mixed corporate results and economic data.

The National Institute of Social and Economic Research said GDP grew by just 0.3% in the three months to end-June, adding to fears of economic Source: ONS Data at 12/8/2016 slowdown. However, the stock market was buoyed by strong performers such as Standard Life reporting an 18% increase in first-half profits. Chart 2: Visa UK consumer spending index, July 2016

Barclays and Royal Bank of Scotland also rose as the Competition and Markets Authority (CMA) ordered banks to launch a new digital system enabling customers to access multiple accounts from different providers.

On Wednesday, there was some market concern when the Bank of England ran into trouble trying to buy £1.2bn of gilts, falling short by nearly £50m. However, the FTSE 100 recovered to finish slightly up.

Thursday saw the market advance a further 0.7%, rebounding from an early decline as a number of blue chip stocks including BT, Royal Dutch Shell and Lloyds Banking Group went ex-dividend. Shares were up in early trading Friday ahead of a range of US consumer and business data. Company focus: G4S

Back in May, G4S said the year had started well, and on Wednesday the group confirmed that it has secured new contract wins worth £1.4bn in the first half of 2016. Source: Visa Data at: 12/8/2016 G4S, which runs services ranging from prison security to cash transportation, appears to have put behind it a series of scandals that had Chart 3: G4S operating profit, 31/12/2015 seriously damaged its reputation. Chief among these was its failure to provide enough guards for the London Olympics in 2012.

Results for the six months to 30 June showed adjusted revenue up 5.1% and earnings per share up 13.8%. Despite concerns that the dividend might be cut to tackle debt, the payout was maintained at 3.59p.

The shares have performed in line with the market since the Brexit vote. More than 80% of revenues are from outside the UK. Underlying profits rose 8% to £199m helped by strong revenue growth in emerging markets.

Reducing debt remains a priority. In the first six months of the year, seven businesses were sold realising proceeds of £32m. Looking forward, G4S said it has a substantial pipeline of contracts, with the UK government remaining its largest customer. The group expects demand for its services to grow by around 4% to 6% a year. Source: Brewin Dolphin, company reports Data at: 12/8/2016 Brewin Dolphin 08 May 2018

Economic Outlook

On Monday, a survey by Visa based on credit and debit card usage showed that consumer spending increased 1.6% year-on-year in July, suggesting this key driver of the economy held up relatively well following the Brexit decision. This contrasts with most consumer surveys since the referendum, which have indicated a significant negative impact.

It was followed on Tuesday by a similarly upbeat British Retail Consortium-KPMG survey which showed the value of retail sales rose by 1.1% in the year to July, beating forecasts of a 0.7% fall.

Also released on Tuesday was official data showing that UK industrial production was stable, although this lagging indicator appears to have been superceded by a slew of more negative sector readings since the EU referendum.

The Office of National Statistics (ONS) also said that the UK’s trade deficit widened in June, as the weaker pound following the Brexit vote had yet to filter through to boost exports.

The balance of trade for goods and services increased from a deficit of £4.2billion in May to £5.1billion.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that sterling’s depreciation will take time to filter through as a benefit: “Previous sterling depreciations typically have taken two years to boost net trade, as it takes time for contracts to be renegotiated and exporters to invest in new capacity,” he said.

On Wednesday, a survey of financial jobs in London by recruitment agency Morgan McKinley found that the number of new positions was down 12% in July from June and by 27% compared to July last year.

Meanwhile an Institute of Fiscal Studies (IFS) report put the value of access to the European single market at around 4% of UK GDP, underlining the importance of continuing European trade for UK businesses.

The Bank of England also released data showing that growth in business services and consumer spending slowed in July, adding to the mixed messages coming through in economic surveys since the EU referendum. The BoE data contradicted reports earlier in the week which showed an upbeat mood among consumers.

Half of the companies surveyed by the BoE said they would reduce hiring activity over the next year and 60% said they intended to cut costs in other ways.

The housing market continued to slow down in July, according to the monthly Royal Institution of Chartered Surveyors’ (Rics) residential market survey published on Thursday.

The report, based on surveyors’ views of the housing market, suggested that house price growth is at its lowest in three years. Transaction levels also dropped further, with surveyors citing post-Brexit uncertainty and tax changes as the main reasons for the slowdown.

Meanwhile construction output data released on Friday showed the sector in recession in the first half of this year, as investor nerves about a fall in property prices led to spending decisions being put on hold.

Output fell 2.2 per cent year-on-year in June, according to the official data, following a 1.6 per cent drop the previous month. Annual output has fallen every single month of this year.

Company announcements that caught our attention this week

Date Company Comment

9/8/2016 Wm Morrison Wm Morrison announced on Tuesday that it has agreed improved terms with its online partner Ocado, enabling the supermarket chain to extend home delivery across the country. Morrisons will take space in a new Ocado warehouse in south-east London and use Ocado’s technology to help meet orders directly from its supermarkets. This ends an arrangement that prevented Morrisons from taking online orders off the shelves of its own stores in areas not covered by Ocado’s delivery fleet. Morrisons will pay 30% of the initial build cost at the new Erith warehouse and a similar percentage of all the fixed and variable costs. In return, its research and development fee to Ocado will be reduced and a profit share agreement will be cancelled. 9/8/2016 Amec Foster Oil and gas services company Amec Foster Wheeler said it faces “very challenging Wheeler conditions” in the coming months as it announced a 7% increase in revenues in the first half of 2016 compared to the same period last year. Revenue rose to £2.8bn but Amec still made a pre-tax loss of £446m in the six months to the end of June, mainly due to asset writedowns of £440m. The company, which relies on the oil and gas industry for much of its business, maintained its profit outlook for 2016 but warned that like-for-like revenues are likely to be down by a double digit percentage year-on-year. New chief executive Jonathan Lewis, who joined on 1 June, said he is reviewing the group’s strategy, organisational structure and cost base and will provide an update in the autumn. Amec will pay its 7.4p interim dividend on 4 January. Brewin Dolphin 08 May 2018 Brewin Dolphin Research

Key Company Diary Dates

Mon 15 Aug Bovis Homes Group Half-year results Tue 16 Aug BHP Billiton Final results Tue 16 Aug Cairn Energy Half-year results Wed 17 Aug Admiral Group Half-year results Thu 18 Aug Kingfisher Trading update

Economic highlights over the next week

Tue 16 Aug – Inflation – The Bank of England expects the sharp fall in sterling since the Brexit vote to push up consumer prices index (CPI) inflation in the near term. CPI inflation rose at an annual rate of 0.5% in June compared to 0.3% in May. Wed 17 Aug – Unemployment – UK unemployment fell below 5% for the first time in 11 years in the three months to May. The number of people in work rose 176,000 to 31.7m. The inactivity rate – the proportion of people aged 16 to 64 who were not working and not seeking or available for work - was 21.6%, the lowest since 1971. Wed 17 Aug – US Fed minutes – In its July meeting the Federal Open Market Committee left the target rate for the federal funds rate unchanged at 0.25% to 0.5%. The minutes of the meeting will be closely scanned for clues regarding future interest rate decisions. Economists think an interest rate rise is still possible this year. Index Movements* Index Value %Change FTSE 100 6,914.71 2.59 FTSE 250 17,807.56 3.27 AIM 779.92 2.40 Dow Jones 18,613.52 1.42 S&P 500 2,185.79 1.00 Hang Seng 22,580.55 3.43 Nikkei 225 16,735.12 2.95

Currency Movements* Currency Pair Value %Change £:$ 1.30 -1.22% £:€ 1.16 -1.57% £:¥ 131.38 -0.99%

Best & Worst performing sectors (rel. to FTSE 350)* Best & Worst performing stocks*

Sector %Change Company %Change Construction & Materials 3.9% Standard Life 15.0% General Industrials 3.0% Barclays 9.7% Banks 3.0% Coca-Cola HBC 8.3% Telecoms -1.9% British Land -2.7% Utilities -2.0% Sky -2.8% Healthcare -2.4% Direct Line In.Group -4.3%

*Weekly movements up until close of business Thursday Important Notes: Main source of information: Company Report and Accounts, Bloomberg The value of investments can fall and you may get back less than you invested. Past performance is not a guide to future performance and performance is shown before charges, which would reduce the illustrated performance. No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us. We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. In addition we reserve the right to act as principal or agent with regard to the sale or purchase of any security mentioned in this document. For further information, please refer to our conflicts policy. If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset. The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd. The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

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