Guaranteed rent – Guaranteed rent | HB Markets Breakfast Today including: BT Group, Randgold Resources and Phoenix
The Markets
Market opening: Markets could open higher, as Eurozone fears recede. FTSE futures were trading 6.0 points higher at 7:00 am UK time.
New York: Markets closed higher on Friday, but recorded their worst weekly losses of 2012. Growth concerns in China and mixed housing data caused the S&P 500 index to lose 0.5% w-o-w, despite Friday’s gains of 0.3%.
Asia: Indices struggled to stay in the green, as investors shed resources and technology stocks on global growth concerns. The Nikkei closed 0.1% lower today, while the Hang Seng was also trading flat at 7:00 am.
Continental Europe: Resources stocks helped markets close higher after Chile’s copper giant Codelco reported increased profit and production. The German DAX edged up 0.2%, while the French CAC 40 gained 0.1% on Friday.
UK small caps:The FTSE AIM All-Share index ended up 0.3% on Friday.
Today’s news
UK economy probably averted a recession
The British economy could have managed to avoid a recession in Q1 2012, Bank of England (BoE)’s policymaker Martin Weale said in an interview with the Bath Chronicles newspaper. He, however, warned that the recovery would continue to be ‘choppy’, as stretched household budgets would not allow consumer spending to recover. The expected spike in data due to the Queen’s Jubilee celebrations and the Olympics would make it difficult to read the real underlying changes in the economy and we may have to wait until Q1 2013 for a more stable picture to emerge, he added.
Company News
BT Group (LON:BT.A)
BT Group announced on Friday that it will halve its pension deficit by end of March 2012. The pension fund deficit was £4.1bn on 30th June 2011, substantially reduced from £9.0bn in 2008, when the last valuation exercise took place. Now, BT Group has decided to reduce it further by making a lump-sum payment of £2.0bn by the end of the month. Of this, £1.5bn will come from existing cash resources while the rest will be managed through borrowings. Furthermore, the company would make nine payments of £325m each year from 2013 to 2021 with the aim of eliminating the remaining deficit. The next funding valuation, which takes place every three years, is due in June 2014.
Our view: : BT’s deal with the trustee of its pension plan is a reflection of its financial strength. In February, the company’s profitability exceeded analysts’ expectations helped by cost cutting measures, lower finance expenses and new contract wins. A credible solution to the pension deficit issue is likely to shift investors’ focus to the healthy underlying business, hence reducing the risk premium and increase the intrinsic value, which is why the stock jumped 5.4% on the announcement. We remain buyers.
Randgold Resources (LON:RRS)
A military coup in Mali last week, wherein a group of soldiers seized control of the country and ousted its president Amadou Toumani Toure, threatens to adversely affect the gold mining operations of Randgold Resources. Chief executive Mark Bristow said that operations at Loulo and Gounkoto as well as at the company’s Morila joint venture were running as normal.
Our view: Randgold generates approximately 60% of its revenue from mines in Mali making potential disruptions a serious concern. With Mali assets accounting for around 40% of NPV, a hike in the country risk premium could have a substantial impact on the stock’s fair value. Randgold managed to work through similar but, so far, worse situation in the Ivory Coast last year, which had a negative impact on sentiment and valuation. Although the management do not see severe operational disruptions in Mali yet, we believe it is prudent to stand back for now and therefore downgrade Randgold to hold.
Phoenix Group (LON:PHNX)
Phoenix Group reported its results for FY2011 on Friday. Total revenue, net of reinsurance payable, declined 13.8% y-o-y to £6.5bn. The company reported a loss of £131m, compared to a profit of £80m in the previous year. Phoenix life witnessed a fall in net premiums written to £1.4bn, down 4.2% y-o-y. Ignis Asset Management was able to increase total assets under management by 3% to £70.7bn amidst the difficult market environment in 2011. Eleven of the fifteen funds generated significant performance fees by outperforming their respective benchmarks. In 2012, the company aims to extend the repayment schedule of £2.7bn worth of debt. The debt, which was raised to fund the acquisition of rival Resolution in 2007, caps the dividend payment at £72m for 2012 (for 2011, the dividend payment was restricted to £58m). The company paid total dividend of £0.42 per share in 2011.
Economic News
US new home sales
New single-family-homes sales in the US fell by 1.6% m-o-m to an annual pace of 313,000 units in February, the US department of Commerce reported on Friday. This is the slowest pace since October 2011. Annual sales were up 11.4%. The sales pace for January was revised downwards to 318,000 units from 321,000 units previously reported. Nonetheless, home prices increased 8.2% to US$233,700 and inventories held steady at 150,000, representing 5.8 months of supply.
Our view: Data released last week presented a mixed picture of the housing market in the US indicating that the housing market is some way from recovery. Milder weather and continued improvement in the labour market helped lift sales of existing homes. However, sales of new homes failed to benefit from these factors. Builders broke ground on fewer homes, but building permits (an indicator of future construction activity) rose. The same trend was seen with new home sales, though unit sales declined, prices increased, sustaining hopes that housing is on a firmer footing from a year ago. Economists were expecting sales of single family homes to increase to 325,000 in February.
UK BBA loans for house purchase
The number of mortgage approvals for house purchases fell to 33,103 in February, down from 37,977 in January, the British Banker’s association reported on Friday. The average mortgage approval value increased to £146,600 from £144,400 in the period, with the total value of mortgages approved for house purchase falling back to a more normal level of £5.0bn after a surge to £5.8bn in January, as buy-to-let investors and first-time buyers looked to buy houses before the stamp duty exemption ended. Remortgaging approvals in February also fell by 12.1% m-o-m to 18,147, its lowest levels in 13 years, with average approval value falling 2.4% to £131,500.
UK Nationwide consumer confidence
The Nationwide Building Society reported that the nationwide consumer confidence index fell by three points to 44 in February as a rise in unemployment and weak economic growth dented the outlook. The index is now 30 points lower than the long run average of 76 and only marginally higher than an all time low of 38 points it reached in December 2011. Among its sub-indices, the present situation index, measuring the sentiment about current economic and employment situation fell 2 points to 19. The expectations Index measuring consumers’ expectations about the economy over the next six months fell by four points to 60, while the spending index, reflecting consumer sentiment about major purchases, fell one point to 78.
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