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Market buzz: Govt wins on 'meaningful vote', Berkeley sparks caution
Wednesday 20 Jun 2018

(Sharecast News) - 1608: The government has defeated the 'Grieve 2' amendment to a Parliamentary 'meaningful vote' on Brexit by 319 votes to 303 in the Commons, which is a majority of 16, after Dominic Grieve himself withdrew his support. "Looks like 6 Tory rebels for a meaningful vote and 4 labour MPs against," says the Labour whips office. The bill will now bounce back to Lords, but commentators say it's a formality. MP George Freeman, Theresa May's former policy adviser, said the compromise by the government means the Prime Minister can go to EU council negotiations "strengthened not weakened". The European Council is set to meet next week without the UK and officials have been voicing their increasingly concern that UK intransigence will result in no deal. 1555: Earlier, broker Liberum initiated coverage with a 'buy' on both British American Tobacco and Imperial Brands, citing the old "be greedy when others are fearful" line from Warren Buffett (who pinched it off an 18th century Baron Rothschild line). Liberum said that in spite of increased regulatory risks, both shares are worth buying, trading at the widest discount to tge the consumer staples sector in over 15 years, despite "improving prospects". "Shares are so depressed that we believe the market is discounting a nicotine standard far earlier than the FDA can reasonably deliver. Our base case assumes the US nicotine standard comes in 2023. We see significant upside on conservative assumptions." 1549: Theresa May is expected to win the Commons vote on the 'meaningful vote' for Brexit after some lastminute dealmaking. One of the rebel Tory Remainers explained the climbdown "from some but not all of them" to ITV's Robert Peston thusly: "It says that if there is no Brexit deal, government will inevitably face debate on an amendable motion - though not one that would bind May." The change came about after Brexit minister David Davis offered rebel Dominic Grieve a compromise to his "meaningful vote" amendment, via a written statement, which will be tabled as written ministerial statement on Thursday. This confirms means it will be up to the speaker to decide whether a motion can be amended. Former Chancellor Ken Clarke said the government is going back on an agreement brokered last week, in favour of a "convoluted deal" which he says will spark a new row about the Speaker's powers. 1528: After Disney raised its offer for Fox to $71.3bn, analyst Neil Wilson at Markets.com says "we must assume that Comcast is ready to come back with an even stronger offer", even though Bob Iger will be looking to kill off Comcast's bid once and for all. "However, the rationale for Comcast remains the same, the question is only how much debt it can afford to carry," he says, with total debt to rise to around $170bn according to Moody's, while Disney will also take on Fox's $14bn debts, giving this bid an enterprise value of more than $85bn. "Debt is a concern for investors here and points to market-top behaviour. The amount of debt both companies are prepared to assume is arguably a worry, but it's a case of innovate or die in the face of competition. It's a sign of just how desperately these two legacy media groups want the assets of Fox. In their attempt to contend with cord cutters like Netflix they are risking leveraging themselves up to a degree that makes them susceptible should the current benign market conditions deteriorate." 1514: RBA's Lowe making case for higher wages at Sintra. 1427: China to make strong countermeasures against US tariffs - Xinhua 1335: Sky shares have spiked as Fox has agreed a new deal for Disney to acquire some of its entertainment assets. Disney has agreed to pay $38 per Fox share, above the previously agreed purchase price of roughly $28 from December. Fox's board said it "has not concluded" that the 13 June proposal from Comcast could reasonably be expected to result in a superior proposal under the Disney agreement. "The amended and restated Disney merger agreement offers a package of consideration, flexibility and deal certainty enhancements that is superior to the proposal made by the Comcast Corporation on June 13, 2018," Fox said in an announcement. 1257: There is some 'market chatter' out and about this afternoon regarding the possibility that the government might win this afternoon's vote in the Commons following the amendment it tabled overnight. In any case, the vote is expected at 14:30 BST. 1152: Brussels formally approves €2.8bn of rebalancing measures in response to US aluminium and steel tariffs. 1151: The Competition & Markets Authority's chairman takes up his role today. Andrew Tyrie, the former chair of the Treasury Select Committee and parliamentary commission on banking standards, suggested the regulator could take a harder line. Tyrie said "competition can and should be put even closer to the centre of British economic life, reaching to every sector, rooting out monopoly and unfair trading practices". 1147: Looking at Berkeley, Russ Mould, investment director at AJ Bell, says that "history shows that when Pidgley acts, markets should listen" and that second-guessing chairman Tony Pidgley, "is usually unwise", but adding that investors appear to be taking his forecast that profits have peaked at the house builder more seriously today than when he first made it back in December". The housebuilder's focus on high-end properties in the South East means it is far from typical within its peer group, so investors in the wider sector are not all running for the hills yet, as Pidgley expects profits to drop by around a third in the year to April 2019. "This may explain why the chairman, as well as managing director Rob Perrins, finance director Richard Stearn and four other executive or non-executive directors were all sellers of stock in the second half of 2017, even as the shares marched higher," Mould says. Caution on the macroeconomic outlook, as well as the impact of higher raw materials costs is reflected in a decision not to expand its land bank to any great degree. 1142: On the industrial trend survey Pantheon Macroeconomics says it "provides reassurance" that the sector's revival hasn't run out of steam, following the sudden 1.4% month-to-month decline in the official measure of manufacturing output in April. "Producers, however, appear to be taking a margin hit in order to protect demand; the price expectations balance fell to an 11-month low of +13, despite the jump in oil prices over the last three months," Pantheon said. 1109: The CBI industrial trends survey has come out much stronger than expected, with total orders for June up to a balance of +13 from -3, versus a consensus estimate of +2. Manufacturing order books recovered and the volume of output in the three months to June grew at the fastest pace since December, the CBI says after surveying 388 manufacturers. Growth was broad-based, with output growing in 14 out of 17 sub-sectors, with growth mostly driven by the food, drink and tobacco focused companies, along with mechanical engineering. Respondents anticipate that output growth will slow slightly over the next three months. Total order books returned to the healthier levels recorded at the end of 2017, while export orders remained stable and well above average, in line with the past 16 months. 1050: Rallying global equity markets and a moderately stronger dollar are the main themes today, say analysts at TD Securities. The euro is down 0.2%, sterling down 0.1% ahead of key Brexit votes in the House of Commons today. A mixed performance in emerging markets forex, but with an overall positive bias. The rand is up 0.7% with weaker than expected CPI having little impact, Turkish lira down 0.2%, Russian ruble up 0.6%. Core fixed income markets slightly weaker, with 10y Bund yields up 0.8bps. Eurozone peripherals are, however, firmer. Brent crude is up 0.5%. "The Sintra policy panel and the Brazil rate decision are the main risk events today." 1033: Markets are being helped by bulls stepping in amid a lack of fighting talk from either of China or the US, says Chris Beauchamp, chief market analyst at IG, with BP and Shell up on the back of oil prices moving higher thanks to Iran taking a tough stance on any increase in output at this week's OPEC meeting. Housebuilding stocks are mostly in the red however. "The sensible view to take is still that negotiations will result, since the past few years have taught us that betting on catastrophe is usually a losing proposition. Indeed, Goldman Sachs' Lloyd Blankfein has taken just this view, and more than a few investors will be inclined to agree with him." Also finding buyers today is Ashtead Group, as yesterday's dip in the share price merely tempts in a few more investors keen to benefit from the US economy growth story. "Housebuilders have been left out of the general rally this morning, as Berkeley Group casts a pall over the sector. While the good times may not be over, the years of bumper profits look to have come to an end. Still, at around 9 times earnings the shares still do not look overly expensive, so today's fall may well be limited." Ahead of the Wall Street open, IG expects the Dow to start at 24,822, 122 points higher from last night's close. 0855: Industry bodies for the UK's soft drinks and brewing industries are warning about an impending shortage of food grade liquid carbon dioxide (CO2) aross northern and continental Europe, with the situation expected to persist at least through until the end of June. Britvic this morning confirmed that it is being impacted, but indicated that it is working closely with suppliers to help mitigate the problem, as well as seeking to secure alternative supplies of CO2 whilst aiming to maintain customer service levels. Broker Numis says the UK hardest hit, due to a number of planned and un-scheduled ammonia plants across the region. "Clearly this shortage comes as the industry moves into peak seasonal demand and, if the situation remains unresolved, could be a negative catalyst for earnings for all companies in our coverage universe. However, given that the potential impact is difficult to quantify at the moment, we have made no changes to forecasts" AG Barr has the largest exposure of Numis drink analysts' coverage, with 80% of gross profit derived from carbonated drinks, but the company has confirmed that it is producing normally at the moment (benefiting from the decision to increase CO2 storage last year); Nichols derives around 42% of gross profit from carbonated products, but its production is outsourced to Refresco/Cott in the UK and it has a bottling partner in Spain, Numis notes, where CO2 availability is better. 0844: The White House has upped the trade war rhetoric with a snappy 35-page report entitled 'How China's Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World' - but European stock markets have broadly mounted a rebound this morning, with the FTSE up 0.9% to 7,675.24. All of the major sectors were in the green, with Brent crude is back above $75.50 per barrel following a half a percent rise certainly helping the UK index have the edge over its Eurozone peers, notes market analyst Connor Campbell at SpreadEx. "The pound wasn't as fortunate as the FTSE. Against the dollar it dipped another 0.1%; and while that may not sound like a lot, it leaves cable straining to hold its head above $1.315, its worst price in 7 months. Sterling also slipped 0.1% against the euro, keeping it at a near one week low against the single currency. "A combination of the ham-fisted way the government is going about Brexit, alongside June's impending Bank of England meeting, is preventing the pound from ending its ugly losing streak. Really, the currency is in desperate need of a hint of hawkishness from Mark Carney and co. on Thursday - even just the tiniest morsel - if it is going to bounce back any time soon." 0834: Broker Peel Hunt believes Ocado's platform "has potential to become the 'standard' platform for retail logistics across all sectors as the operating system of retail", in a note exploring how the company could become like the Microsoft of online retail. Noting that "niche, closed, exclusive platforms like those from Apple lead to a quick rise, but eventual stagnation, whereas generic, open, standard platforms like Windows and Android supersize", analysts reckon Ocado could tap a portion of the top 100 store-based retailers' annual capex budget, an estimated US$89bn in total. On a 15-year view, this would give a £10bn valuation for Ocado Solutions, and if putting the retail business on 15x FY20 EBITDA, it would produce a target price of 1,700p. 'Buy', they say. 0820: After the profit warning from Debenhams yesterday, all the focus in the sector now is on how well June turns out on the high street for non-food retailers, says independent retail analyst Nick Bubb, especially given all the World Cup distractions. "But we haven't seen the final word yet on how good the outcome was for May," he notes, on the back of the Bank Holidays and warm weather. The Office of National Statistics reported that non-seasonally adjusted total retail sales by value were up by as much as 6.3% last month, given strong "non-store" sales. But the BRC-KPMG measure of gross sales (which focuses on large retailers) was only up by 4.1% (up by 2.8% LFL). "So, who was right? The ONS? Or the BRC?" He observes that consultancy group Retail Economics, which was founded by Richard Lim, who used to run the monthly BRC-KPMG Retail Sales survey, has just come out with its own overview and their estimate is that gross retail sales rose in value by 4.2% last month, year-on-year (non-seasonally adjusted, ex-petrol), which is almost bang-in-line with the BRC outcome, estimating that food sales rose by 4.9% last month and that non-food sales were up by 3.6% overall, with DIY/Gardening up by 5.8%, given the better weather. Looking ahead, he points out that tomorrow brings the Dixons Carphone finals and the Quiz capital markets day. And then Friday brings the Boohoo.com AGM, as well as the much-awaited House of Fraser CVA vote. 0801: With Astrazeneca the strongest consensus 'buy' in the sector, broker Liberum has put out a note explaining its 'hold' rating since late last year, though the share price target was upped to £53 from £50. "We believe significant upgrades are needed to maintain the current rating required to be a bull, but think this can only come from disproportionate clinical success. Meanwhile, the current share price already assumes by far the highest R&D returns in the sector." Analysts added: "We see a disconnect between company compiled consensus and the valuation, and suspect real expectations for key pipeline assets are higher than the print suggests." While a very rich vein of newsflow could deliver circa 30% upside to the valuation, but with the shares price $1.42 of value creation per $1.00 spent on R&D, "the remarkable turnaround Astra has executed looks in the valuation". 0755: Brexit is the big deal in parliament today. The government is seeking to defeat a House of Commons challenge from Conservative party rebels who want to give MPs a "meaningful vote" in the event that Britain could leave the EU without a deal. This comes as a leaked draft of conclusions for next week's European Council called for "member states and all stakeholders to step up their work on preparedness at all levels for all outcomes" - with other leaks from officials reported in the media that the talks are expected to fail.

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