Gareth & Jeremy discuss the path for interest rates, Nvidia and the AI bubble, the parallels to the dot-com bubble, and what might happen next. In the UK they discuss Springfield Properties, Currys, Dialight, and Gooch & Housego. Finally, Jeremy looks at the macro data that might impact markets this week.

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In their weekly chat, Jeremy & Gareth discuss the UK recession, the trends for inflation and interest rates and how stock markets are behaving and the outlook for the consumer. They ask whether the UK might go it alone and cut rates before a move from the Fed.

They also discuss Bloomsbury Publishing and the demand for fantasy fiction, XP Power and implications for de-stocking in industrial supply chains, and the cancellation of the Close Brothers dividend due to the new PPI on wheels.

There is not much on the calendar for next week's macroeconomic data; FOMC minutes are about it.

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Gareth and Jeremy are joined by Alastair Stewart, who talks about the Barratts Redrow acquisition, the outlook for the housebuilding sector, house price data and the emerging recovery in transaction volumes. Additionally, they cover the updates from Beeks Financial Cloud and Sanderson Design, and in next week's news, they highlight the release of some potentially disappointing UK macro data.

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Rate Reductions on Hold but Outlook for UK Small Caps Remains Positive

Jeremy and Gareth discussed issues in markets last week with the outlook for interest rates, inflation, the UK housing market, emerging banking strains based on commercial real estate lending with echoes of last year's US regional banking crisis, and the Mag Seven reporting season.

In the UK, they talk about STV, specifically its studio business, PE investor Chrysalis being more confident about the prospects of IPO exits for its companies, and IT services supplier FDM demonstrating more signs of stability. 

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This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Jeremy and Gareth talk about the week in markets, how the world economy is shaping up and, in particular, what the hell's happening in China, its economy and stock market. Also discussed are UK updates from Forterra, Idox, Wetherspoon, and Aquis Exchange.

Brought to you by Progressive Equity Research. 

Jeremy McKeown and Gareth Evans are joined by Scott Evans of the London Business School and co-compiler of the Deutsche Numis Market Indices to discuss the performance of mid and small-cap last year, over the long term, and what might be driving equity market performance in 2024. In addition, they mention updates from Concurrent Technologies and Gamma Communications from last week.   

Jeremy McKeown & Gareth Evans discuss the macro drivers behind this week's equity markets and some company updates that caught their attention. 

Companies mentioned this week include UK housebuilders, M&S, Marks Electrical, Sosander and Xaar. 

Macro & Overnight

It’s a quiet day for macro news; investors are focusing on US inflation data later today for clues about the Fed rate decision, where the next FOMC meeting is on January 30th.

The SEC finally approved Bitcoin ETFs in the US market, widening the scope for investors to access the alternative asset, for example, via 401K pension plans.

The Winklevoss brothers first proposed a Bitcoin ETF in 2013 when the price was $500. The regulator’s reluctance to sanction this product over the last decade has “saved” US investors from participating in an instrument that has risen 90-fold in dollar terms over the period.

UK Company News

Trustpilot expects to report profits above the top end of the range of market expectations. In addition, it continues to deliver strong cash generation and announced plans for a £20m share buyback.  

Mpac Group, the packaging and automation provider, updated that its H2 revenue and profit were substantially above H1, aided by the normalisation of margins. It had a closing order book of £75.0m (FY22: £67.2m). Its H2 order intake was the highest ever. 

GlobalData expects to deliver underlying revenue growth of 7% and EBITDA growth of 28%, with stronger-than-expected margins of 41% versus 36% last year. It is reorganising to operate across three customer-focused divisions – Healthcare, Consumer, and Technology. Before Christmas, it announced plans to sell a minority stake in its Healthcare business, which accounted for c.36% of revenue, at a valuation of £1.1bn, raising net cash proceeds of approximately £434m for the group. 

GlobalData is among several UK-listed B2B media companies that are realising significant value from their divisional portfolio, in this case by bringing in private equity to take a minority stake in a division, which exposes the UK market’s considerable undervaluation of these assets. The move also delivers Mike Danson, the founder and CEO, the opportunity to fund non-dilutive acquisitions, where he has a strong record. 

This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close. 

Macro & Overnight

The Bitcoin price was more volatile than usual overnight as speculation waxed and waned regarding the SEC’s expected approval of about a dozen applications for ETFs. There remain strong indications that SEC approval will be granted today for ETFs from providers such as Blackrock and Fidelity, among others, despite erroneous reports online that approval had already been granted late yesterday.

UK Company News

Persimmon said they anticipate market conditions will remain highly uncertain during 2024, particularly for first-time buyers. However, they note that mortgage rates are beginning to ease, and input costs continue to moderate. 

Greggs said that FY23 total sales were up nearly 20%, opening 220 new shops to end the year with 2,473. Inflationary pressures are reducing, and its full-year outcome remains aligned with its previous expectations.

Sosander, the female fashion brand, updated on a record quarter with revenue up 23%. Gross margins rose due to reduced promotional activity. Joint CEOs say this continues to validate their multi-channel strategy after successful launches in Australia and Canada, and they plan to open their first UK store this spring. They also reiterated their strategic goal of delivering £100m+ revenues and a pre-tax profit margin of at least 10% in the medium term. 

Marks Electrical updated Q4 revenue growth of 17.8% and increased market share in its retail household appliances and electrical goods categories. However, despite proactive cost action, it warned that product margins did not rise to the expected level with a material impact in the peak trading period, which has had a material impact on profit guidance. 

Marks Electrical is a well-run but tricky business to get right. business with an actively involved founder and CEO, Mark Smithson, leading from the front. He is justifiably proud of the 60,000 TrustPilot reviews, with 95% 4 and 5 stars. He knows from 37 years of trading that margin fluctuations are inevitable. These periods present an opportunity to learn, ultimately enabling the Group to create long-term value and position us as the UK’s leading premium electrical retailer. Marks’ focus on the premium end of the market with a small but growing share should be attractive if the UK housing market continues to recover and lead to increased housing transactions. In the meantime, Marks will remain in the investor doghouse. The shares are sharply lower today.  

This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close. 

Macro & Overnight

Oil prices dropped sharply yesterday as OPEC+ struggles to maintain production discipline, evidenced by Angola splitting away from the producer cartel last month.

This week’s main macro focus remains on Thursday’s US inflation data. Expectations are for the year-on-year headline rate to be unchanged from last month’s 3.2%.

Equity markets were strong overnight, led by US technology. Nvidia was up 6% and announced a new AI chipset for PCs, while the broader US market was in a risk-on mood.

Bitcoin continued its upward price move amid growing speculation of SEC permitting spot Bitcoin ETFs as soon as tomorrow. It is up 10% YTD.

UK Company News

Games Workshop updated that employee morale is good, and its hobbyists are having fun, too, but not much fun was reported elsewhere in the UK today. 

Recruitment stocks were marked lower as Hays warned of a hiring slowdown. 

Jupiter warned that retail investors continue to withdraw funds from equity markets and has made some changes to its fund manager lineup. 

Low-cost house builder and land development company MJ Gleeson completed the sale of 769 homes during the half-year, 14% fewer than last year. However, it entered the second half with a much stronger forward-order book. But it also warned that full-year gross margins are now expected to fall from previous expectations due to higher selling incentives and longer sales cycles. Against the backdrop of stabilising interest rates, the Board anticipates a recovery in demand for low-cost housing in the seasonally busier selling period over the coming weeks and months.

Gleeson shares and those for other housebuilders led the recovery in the UK market over recent weeks on hopes of lower rates. Today’s news is mixed with confirmation of a strongly recovering top line. However, higher-than-expected costs in 2023 mean the recovery in profits is happening from a lower base than previously believed. 

This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close.