Despite the ongoing uncertainties around US/China trade, markets in Europe have opened higher this morning, taking a positive lead from a strong performance in Asia markets. It’s been a decent week for markets in Asia, with the Nikkei 225 closing higher for the third week in a row, the first time that has happened since October last year.
Pub chain Fuller Smith and Turner’s shares have surged higher this morning after announcing that it was selling its entire beer business, including London Pride, to Japan’s Asahi Group Holdings for an enterprise value of £250m.
It would appear that management have taken the view that selling the beer business will allow the company to focus its attention on the hotels and pubs division, which saw a rise of 5.6% in like-for-like sales over the last 10 weeks, which included the Christmas and new year period, which was particularly strong. Management went on to say that 87% of operating profits came from the hotels side of the business, so a sale of the beers business made sense, with the proceeds ploughed back into the business. The sale will also see between £55m and £69m returned to shareholders. Over the rest of the year like-for-like sales rose 4.7% while drink volumes were flat.
Telecoms giant Vodafone underwent a bit of a slide yesterday after its South African unit Vodacom posted a drop in revenues of 0.9% as a result of falling sales, sending the shares back towards last October’s seven-year lows . In the last 12 months, the shares have seen some big falls driven by concerns about the size of its debt as well as future costs with 5G licences coming up for bidding, while the company has found competition fierce in most of its markets, in particular Italy and Spain.
There are also concerns about the size of its dividend, currently at 9% which in the longer term isn’t sustainable with a dividend cover of 0.5, which means that the company is having to fund the payout by way of borrowing. A dividend cover of less than 1 means that profits aren’t sufficient to cover the payout to shareholders, something that isn’t sustainable over time.
This morning’s Q3 trading update doesn’t appear to have convinced investor to reverse any of that decline with group revenue coming in at €11bn. Services revenues were down 1.1% in Europe, however the company said that improved customer trends in Italy and Spain were encouraging and would probably be reflected in the next quarter.
The revenue declines in South Africa were more than offset by a rise in other markets, which saw a 4.9% rise in the Rest of the World. It would appear that for now investors remain unconvinced as to whether to buy back in after 12 months of declines, with the shares down over 35% from a year ago.
Irn-Bru maker AG Barr also updated the markets with a full year pre-close trading update which showed revenue was expected to rise by 5%, on the back of rising volumes of 3%.
The company said that it expected the continued economic uncertainty in the UK, along with the prospect of further regulatory intervention, on top of the recent soft drinks levy, to keep the outlook challenging. The shares have slipped back in early trading, however they still remain within touching distance of the record peaks seen earlier this month.
The pound has continued to climb overnight on reports that the DUP have said they would support Theresa May’s withdrawal agreement if the backstop were time-limited. While that is wonderfully pragmatic of them, the EU have consistently said that they were not prepared to put an end date on the backstop, so it’s not immediately apparent we are any further forward, although markets still appear to be pricing in the prospect that something will be agreed to avoid a no-deal Brexit.
Crude oil prices have remained firm, rising overnight on concerns that further sanctions against Venezuela will shrink supply further. This seems a little overstated given that Venezuela’s output is a mere 1m barrels a day, a shadow of what it was 3 years ago.
After an indifferent session yesterday and weekly jobless claims at their lowest levels since 1969, US markets look set to open higher on the back of today’s strong Asia market performance as investors take stock at the end of what has thus far been a decent month for equity markets.