27 November 2020 Market roundup

It’s been a historic week for equity markets as numerous indices Chart 1: Various scenario expected unemployment hit all-time highs. In the US, the Dow passed the 30,000 level for the first time, the Russell 2000 index of small cap firms hit a new record, Japan’s Nikkei hit a 29-year high and the MSCI Global Index hit its highest level ever. Equity markets largely rose on Monday after more positive vaccine news from AstraZeneca/Ox- ford University, although stocks were mixed in the UK thanks in part to a stronger pound, which weighs on the FTSE100. It closed down 0.28% at 6,333.84, while the more domestically focused FTSE250 rose by 0.39% to 19,582.35 as hopes increased of a Brexit deal. In the US, the tech-heavy Nasdaq closed up by 0.22% but the more ‘old economy’ Dow gained 1.12%. UK shares rose again on Tuesday as the Dow burst through the 30,000 level for the first time and the FTSE100 closing up 1.55% at 6,432.17. But on Wednesday, UK blue chips fell back on some Source: ONS, OBR Data at Nov 2020 Chart 2: CBI retail sales index November profit-taking against a backdrop of a quite bleak spending review by Chancellor Rishi Sunak. The FTSE100 closed down 0.64% at 60 6,319.09 with banks suffering – lost 4.53% - after the 40 government review forecast big rises in unemployment. In the US, the Dow fell by 0.58% back below 30,000 while 20 the Nasdaq rose 0.48% to 12,094.40. The US market was closed 0 Thursday for Thanksgiving, and UK and European equities fell marginally on lower volumes, while most Asian markets rose. In -20 early trading on Friday, UK shares were heading down. -40

Company focus: Compass Group -60 Catering group Compass managed an operating profit of

£561m in 2020 despite a difficult year which saw it close large

07/2016 11/2015 03/2016 11/2016 03/2017 07/2017 11/2017 03/2018 07/2018 11/2018 03/2019 07/2019 11/2019 03/2020 07/2020 11/2020 parts of the business because of the Covid-19 pandemic. The FTSE100 listed firm returned to profit in its fourth quarter thanks Source: CBI Data at 24/11/2020 to reducing costs and refocusing operations. Chart 3: Compass Group revenue by region 2020 Revenue fell 18.8% from £24.8bn in 2019 to £20.2bn this year, whilst operating profit dropped by 69.7% to £561m. The com- 12% pany suffered from the switch to working from home, but group Chief Executive Dominic Blakemore said: “We rapidly enhanced our health and safety protocols, mitigated our costs, increased our liquidity and strengthened our balance sheet. Through the 63% summer, our performance began to improve slowly as we North America helped clients in education and business and industry return to Europe schools and offices safely.” Compass raised £2bn in an equity Rest of World raising earlier this year to bolster its balance sheet and has cut around 7,000 of its UK staff. 25% Looking ahead the company shall concentrate on increasing its business in schools, hospitals, and care homes, where there was demand for caterers that “can manage the health and safety and hygiene requirements of this new environment”. Source: Compass Group yearly report Data at 24/11/2020 Sources: Bloomberg, Sharecast, FT, company reports and accounts Economic roundup While global stock markets have been hitting new highs, it has been a relatively downbeat week on the economic front. The government announced 99% of England’s population faced more severe restrictions than before the national lockdown on Thursday. This came a day after Chancellor Rishi Sunak revealed a plethora of eye-watering numbers in the government’s spending review and laid out a range of forecasts for the economy, unemployment, and associated costs. The figures were huge but not surprising given the unprecedented circumstances of the pandemic. The Office for Budget Responsibility said the economy is forecast to contract by 11.3% this year and unemployment likely to hit 7.5% in 2021, but these are central forecast and contingent on working vaccines and controlling Covid-19. In its ‘downside’ scenario in which the pandemic continues, unemployment could hit 11% next year, posing big challenges for government finances and with knock-on effects to the housing market and beyond. Hence the Chancellor underlined the fact that the furlough scheme has been extended until next March while announcing £2.9bn for a new Restart jobs scheme and £1.4bn to expand the Jobcentre Plus agency. Analysts have expressed doubts that these programmes will prevent unemployment rising to the higher end of the forecast range, if not beyond, in part because of the way unemployment is measured. For example, many people are not looking for work because of the pan- demic and are therefore not counted in the official statistics. In addition, many more currently (or soon to be) on furlough will likely lose their jobs when the scheme ends. However, an improvement is then likely, as the economy is forecast to grow by 5.5% next year and by 6.6% in 2022. By the end of 2022, economic output is predicted to hit its pre-pandemic levels once again. The Chancellor also announced borrowing would rise to £394bn this year, equivalent to 19% of GDP, the highest level in peacetime. On closer inspection, borrowing costs are actually ballooning out to £863bn over the five-year OBR forecasting term; increasing by £164bn next year and £100bn or more in each subsequent year. This is to be made possible by an additional £450bn in quantitative easing, which enables the government to borrow at rock-bottom rates. In other news, the shift to online shopping has helped retailers attract more business although overall sales volumes fell in the year to November, according to the latest CBI distributive trades survey. The survey said despite retail sales falling, internet sales grew at the fastest pace since October 2018, confirming the shift away from bricks and mortar to online. Looking ahead, retailers expect sales volumes to be broadly flat in the year to December, with the current English lockdown due to end on 2 December, albeit with millions still under strict stay at home orders. Meanwhile, retailers reported that employment fell further in the year to November. Ben Jones, CBI Principal Economist, said: “With encouraging progress on mass, rapid testing and vaccine solutions coming down the track, there is reason for growing consumer and business confidence going into 2021.” On Brexit, face-to-face talks are set to resume in London this weekend after negotiations were suspended when the EU's chief negotiator Michel Barnier self-isolated after a colleague tested positive for Covid-19 last week. There was supposed to be an agreement this week, but sticking points remain, and the final deadline remains 31 December, after which the UK will exit on WTO terms if there is no deal.

Company announcements that caught our attention this week:

Date Company Comment

25/11/2020 United Utilities United Utilities reported a 16% fall in its underlying profit for the first half of its financial year on Wednesday. Profits fell to £174m which it said was the result of new price con- trols. Revenue for the six months ended 30 September totalled £894.4m. It announced an interim dividend of 14.41p per share, up from the 14.2p it paid last year. It said bad debts were stable at 1.8%. “Our focus throughout the Covid-19 pandemic has been on supporting customers, protecting our colleagues and maintaining essential services,” said chief executive officer Steve Mogford.

25/11/2020 Babcock Inter- reported full-year profits and revenue had fallen on Wednesday national due to the Covid-19 pandemic. In the year to the end of September, statutory pre-tax profit fell to £55.3m from £152.5m the year before, with revenue falling to £2.11bn from £2.19bn in 2019. CEO David Lockwood said: "Our operating profit performance in the first half reflects this Covid-19 impact as well as disposals, the impact of government insourcing of Magnox and Dounreay, and weak trading in civil aviation.”

Sources: Office for Budget Responsibility; British Confederation of British Industry; company reports and accounts Research

Key company diary dates 30 Nov Associated British Foods plc Final results 03 Dec AJ Bell plc Interim results 03 Dec Paragon Banking Group plc Final results Economic highlights over the next week Mon 30 Nov – Nationwide House Prices – The Nationwide House Price Index increased 5.8% year-on-year in October 2020, the most since January 2015 and beating market consensus of a 5.2% rise.

Tue 01 Dec – UK Manufacturing PMI NOV - The IHS Markit/CIPS UK Manufacturing PMI jumped to 55.2 in November of 2020 from 53.7 in October, beating market forecasts of 50.5, according to preliminary estimates.

Wed 02 Dec – UK Services PMI NOV - The IHS Markit/CIPS UK Services PMI dropped to 45.8 in November 2020, from 51.4 in the previous month but well above market consensus of 42.5, a preliminary estimate showed.

Index movements* Index Value %Change FTSE 100 6,363 0.45% FTSE 250 19,396 -0.57% AIM 1,038 1.82% Dow Jones 29,872 1.32% S&P 500 3,630 1.33% Hang Seng 26,819 1.75% Nikkei 225 26,537 3.52%

Currency movements* Currency Pair Value %Change £:$ 1.33 0.81% £:€ 1.12 0.28% £:¥ 139.00 1.18%

Best & worst performing sectors (rel. to FTSE 350)* Best & worst FTSE100 performing stocks*

Sector %Change Company %Change Oil & Gas 8.70% Glencore 11.43% Basic Resources 5.14% Antofagasta 10.80% Financial Services -0.69% Rolls-Royce Holdings 9.88% Insurance -2.04% Halma -9.45% Technology -4.78% Experian -10.40% Chemicals -4.98% Sage Group -11.83%

*Weekly movements until close of business 26/11/2020. Sources: Bloomberg, Refinitiv Important Notes: The value of investments and any income from them 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 securi- ties 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 inde- pendently 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. Brewin Dolphin Ltd, a member of the , authorised and regulated by the Financial Conduct Authority. Registered office: 12 Smithfield Street London EC1A 9BD. Registered in England and Wales no 2135876.