FTSE 100: winners and losers of early 2019
The FTSE 100 has risen by more than 10% since the start of 2019 and only a handful of the UK’s 100 largest publicly-listed companies (13 to be precise) have lost value. We have a look at the winners and losers of the index.
Biggest FTSE 100 gainers
Below are the top 10 FTSE 100 stocks in terms of share price gains over the three months to 12 April 2019:
|Ocado||Online supermarket and tech licenser||56%|
|Evraz||Steelmaker and vanadium miner||36%|
|Micro Focus||Software and IT services provider||29%|
|3i Group||Private equity and infrastructure investment||27%|
|Spirax-Sarco||Industrial steam and fluid control systems||25%|
|Antofagasta||Copper miner operating in Chile||24%|
|Auto Trader||New and used car marketplace||23%|
|Halma||Hazard detection and protection gear||22%|
Ocado Group: Marks & Spencer joint venture adds momentum
Momentum keeps building for Ocado Group and the recent rally in its share price was prompted by a new joint venture with Marks & Spencer in late February. It will combine M&S’s products, which are more upmarket, with Ocado’s range of own-label goods and will run off the firm’s logistic technology. M&S is paying £750 million to own half of the venture but Ocado will oversee the appointment of its chief executive. The new offering will go live in September 2020.
That is just one of a number of deals Ocado has signed since 2017 which is reshaping Ocado into a firm that licenses out its automation technology to retailers rather than an online grocer. Its biggest deal to date was signed with US giant Kroger and backed up by contracts with ICA in Sweden, Sobeys in Canada and Casino in France. Its latest deal was signed with Australian firm Coles.
It is also worth noting that the rise in value follows the knock to Ocado shares following the fire at its Andover facility in early February.
Evraz: Abramovich and others sell down after stellar 2018
Evraz shares have been buoyed following strong 2018 results that delivered a net profit of $2.5 billion compared to just $759 million the year before. Earnings before interest, tax, depreciation and amortisation (ebitda) reached its highest level in a decade, which allowed it to raise its dividend. That was combined with a 10% reduction in net debt over the year.
Investors also believe the company’s exposure to sanctions imposed on Russia, where it operates, has been reduced after its main shareholder – the owner of Chelsea Football Club Roman Abramovich - and his partners sold down their stakes in the business. Abramovich, businessman Alexander Abramov and others sold £151 million worth of shares which reduced their combined stake to below 50%.
Micro Focus: investors lap up extension of share buyback
Micro Focus had hit trouble this time last year after it issued a sales warning and said the integration of Hewlett Packard’s Enterprise business – its biggest acquisition to date which more than quadrupled the size of the business – had been tougher than first expected. However, when releasing its 2018 results in February the company said most of these troubles had been overcome and added the slowdown in sales had eased somewhat.
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But it was the announcement that Micro Focus had extended its share buyback for the second time in three months that won investors over, stating it would buy a further $110 million worth of stock. That means Micro Focus will have repurchased $510 million worth of shares in total since announcing the programme in 2017 versus an original target of just $171 million.
3i Group: improving performance despite market volatility
3i Group, which invests private equity and in infrastructure projects, has proven resilient despite 'significant market volatility'. Its net asset value (NAV) rose to £8.02 at the end of 2018 from £7.76 three months earlier, and it delivered a total return of almost 14% over the first nine months of its financial year.
The company has said it is still cautious on private equity valuations in the current market and therefore concentrating on making bolt-on acquisitions in the meantime.
Spirax-Sarco Engineering: delivering progress across the board
A combination of organic growth and boosts from acquisitions helped Spirax-Sarco Engineering deliver a solid set of 2018 results. Revenue rose 7% to break through the £1 billion threshold and, with significantly better margins, pre-tax profit jumped to £289 million from £193 million in 2017. Better cash conversion allowed the dividend to be hiked 14% to 100p.
Spirax-Sarco also recently completed the £139 million purchase of French firm Thermocoax Developpement, which develops electrical thermal solutions for critical applications. The business will become part of its Chromalox business and will 'significantly enhance our electrical process heating business, especially in Europe'.
British American Tobacco: solid foundations with new growth opportunities
British American Tobacco (BAT) and the rest of the tobacco industry is going through something of a revival. Although regarded as an income stock that pays consistent dividends, BAT and others were seen as peddling a business in decline but new areas such as vaping and cannabis legalisation have opened up new growth areas for the industry.
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BAT’s revenue rose to £24.5 billion from £19.6 billion in 2018 and pre-tax profit, excluding the one-off gain booked from the acquisition of Reynolds American in 2017, rose to £8.4 billion from £6.2 billion. The dividend rose 4% to 203p from 195.2p.
Barratt Developments: benefiting from Help to Buy and undersupply
Barratt Developments, the UK’s largest housebuilder by volume, has proven its resilience despite the uncertainties caused by the likes of Brexit. Pre-tax profit jumped 20% in the six months to the end of 2018 to £408 million as both revenue and margins improved, with shareholders benefiting from a 12% lift to the interim dividend to 9.6p.
Although the economic and political backdrop are far from ideal, the regulatory environment for Barratt and its peers remains sound. The government-backed Help to Buy scheme is opening the door to home ownership to more people and accounting for a substantial amount of the industry’s sales and the UK is still well-off its target of building 300,000 new homes each year.
Antofagasta: turnaround to rebound
Antofagasta shares struggled after it released its interim results in 2018 showing it had a tough first half exacerbated by a fall in copper price. However, it has since confirmed it rebounded strongly in the second half and now positioned well for growth. Copper production hit a record in the final quarter of the year and the miner managed to deliver the top-end of its guidance range (which had been downgraded in October) for the full year with output of 725,300 tonnes. It has said production in 2019 will climb 9% to 750,000-790,000 tonnes. While Antofagasta maintained broadly the same payout ratio as the year before its dividend for 2018 was cut 14% to 43.8 cents and net debt rose over 30%.
Antofagasta shares rise after record production in 2018
Antofagasta said the copper market was in a 'slight deficit' last year but has forecast that will swell this year, which should be good news for prices. If it can raise production and keep costs among the lowest in the industry, then Antofagasta could be in for a solid 2019. The London Metal Exchange (LME) copper price has already risen by more than 5% since the start of October 2018.
Auto Trader: high expectations push shares higher
Auto Trader shares have soared over 60% in the last 12 months. The company has been quiet since last November when it released its interim results to the end of September, showing a 7% revenue rise with a 9% lift in pre-tax profit. Cashflow improved, net debt was lowered and shareholders were rewarded with a higher dividend and larger share buyback. The outlook was also solid as it said it expected to beat its guidance.
While no update has been released since there has been evidence from elsewhere in the industry that market conditions for used car sales has been solid.
Halma: growth through acquisition
Halma has recently confirmed it remains on track to deliver results in line with market expectations for the full year that ended in March 2019, having posted a 16% rise in revenue and a 23% jump in pre-tax profit in the first half, when the dividend was upped by 7%. Annual pre-tax profit should be around £243.7 million, up from £213.7 million the year before.
Halma acquired three businesses in the second half of the financial year and recently said it bought Rath Communications, a provider of emergency communication systems in the US.
How to trade FTSE 100 winners
Most brokers believe the rally among these stocks has reached its peak, with virtually all of them regarded as adequately-valued with a Hold recommendation. However, there is a notable number of brokers that still believe Ocado and Antofagasta are undervalued. Brokers continue to see headroom for further gains for BAT and Barratt Developments which both boast a Buy recommendation.
Below is a list of broker recommendations taken from Reuters as of 15 April 2019:
|Strong Buy||Buy||Hold||Sell||Strong Sell||Reuters: broker recommendation|
Biggest FTSE 100 losers
Below are the top ten FTSE 100 stocks in terms of share price losses over the three months to 12 April 2019:
|TUI||Package holidays, flights and cruises||-32%|
|Centrica||Energy generation and supply, owns British Gas||-19%|
|Fresnillo||Gold miner operating in Mexico||-14%|
|NMC Health||Healthcare provider in the United Arab Emirates||-11%|
|Reckitt Benckiser||Consumer goods maker||-6.70%|
TUI: turbulence seems to be getting worse
TUI shares have collapsed 56% since reaching their all-time high in May 2018. The travel company warned in February that there would be a slowdown in sales in summer 2019 and that margins were tightening. It said it had scrapped its previous guidance to deliver an compound annual growth rate of 10% in underlying ebitda for the three years to September 2020, and that underlying ebitda in the current financial year would be broadly flat to the €1.2 billion reported last year.
However, shares have been rattled further after TUI said it would only be able to deliver that €1.2 billion figure if its Boeing 737 Max aircraft – accounting for around 15 of its 150-strong fleet – were flying again by July this year. TUI has said it earnings could fall by more than a quarter this year if they’re not back up and running by then. The aircraft were suspended around the globe after two fatal crashes which has caused problems for many airlines.
Centrica: will a cap on energy prices also cap the dividend?
Shares in Centrica, which both generates and supplies electricity and gas to consumers across the UK, started to come under pressure when it warned the UK government’s energy price cap could knock £70 million off its profit this year and scrapped cashflow growth targets, causing many to doubt the future of its dividend, which was kept flat in 2018. Some have also become displeased by the bloated pay packet of chief executive Iain Conn which, amidst the pressure to lower prices and the tough outlook, saw his pay rise 44% last year.
The company, which owns British Gas, has said it plans to sell off £500 million worth of assets and Conn has said investors should not assume a dividend cut is coming, but that has done little to stop to the sell-off.
Pearson: investors far from convinced of turnaround
Pearson has been plagued by profit warnings over recent years but 2018 saw what some hope is the start of a turnaround for the business. Revenue declined 9% but pre-tax profit jumped 18% last year, largely thanks to steep cost-cutting efforts amid a major restructuring effort. As part of that, Pearson announced in February that it had agreed to sell its US schools course business for $250 million after struggling to find a buyer over the last year.
Pearson has said it hopes to return to growth from 2020 onwards as it pivots towards getting students to pay to access its software and resources rather than make a one-off purchase. It has a long-term plan in place, but after five tough years many investors aren’t convinced.
Sainsbury’s: can it bag Asda?
Sainsbury’s shares took a knock in February when severe doubt over whether its takeover of rival Asda (owned by Walmart) would be cleared by regulators, which have highlighted major concerns about turning the Big 4 supermarkets into just three and the impact it could have on competition.
The pair have put forward proposals to try to allay the concerns, including the sale of up to 150 stores and promising to introduce price reductions for customers, but it is still highly uncertain as to whether it will get the green light.
Fresnillo: challenging times with more ahead
Fresnillo, the Mexican gold and silver miner, missed its production guidance in 2018 and reported a 14% decline in annual ebitda and a 35% drop in pre-tax profit. It has said it expects higher inflation and lower precious metals prices this year, which has already forced it to cut its 2019 silver guidance. It has since released its first quarter production report which showed a 15% year-on-year drop in silver output and a 9% fall in gold production.
NMC Health: growth slows but still steaming ahead
The private healthcare provider delivered stunning results in 2018 with revenue and net profit both reaching all-time highs. While NMC has said it expects revenue to grow by 22%-24% and ebitda to rise by 18%-20% in 2019, some have become cautious of the slowdown that would represent from 2018, when revenue and ebitda rose by 28% and 38%, respectively.
Still, investors expect the forecasted growth to translate into higher dividends under its progressive payout policy.
International Consolidated Airlines Group: failing to take off
Shares in IAG, the owner of British Airways and other airlines including Iberia, came under pressure in February when it was removed from a number of MSCI’s global equity indices after it introduced a new cap on foreign ownership that limited non-EU investors to owning 47.5% of the company. Shares continued to tumble even after it reported a 6.7% rise in annual revenue in 2018, ahead of forecasts, which pushed adjusted pre-tax profit up nearly 10% and prompted a €700 million special dividend.
That was because it warned operating profit in 2019 would be flat due to fuel prices and exchange rates, and due to concerns over the growing age of its fleet. It has recently put in a multi-billion dollar order for new Boeing jets, but investors know more investment will need to be made at a time when the future is uncertain.
Reckitt Benckiser: will a new chief bring a new era?
Reckitt Benckiser, the consumer and health goods giant, has had a tough few years after suffering from a cyber attack and manufacturing issues. Growth had also started to stall in 2017 but started to rebound in 2018 when like-for-like (LfL) sales rose 3%. It has said it hopes LfL growth will accelerate to 3%-4% in 2019 with stable margins.
Its chief executive officer (CEO) Rakesh Kapoor - among the best paid bosses in the FTSE 100 - has said he will step down before the end of 2019, which some hope will usher in a new era for the business.
Vodafone Group: mixed signals
Vodafone investors are bracing themselves. The telecoms giant’s latest quarterly report released in February showed a decline in revenue and a slowdown in organic service revenue, and investors are wary that Vodafone’s attempt to purchase assets from Liberty Global – key to unlocking its European expansion plans – may not be cleared by regulators. However, it is still adding new mobile and broadband customers and has huge growth potential from its convergence strategy and the deployment of new technologies such as 5G.
ITV: is it worth staying tuned?
ITV shares were severely knocked after Bank of America Merrill Lynch issued a report in January that said the broadcaster would suffer from the rise of online platforms, declining TV viewing figures and a reduction in advertising revenues going forward, prompting it to slash its price target by almost half.
It has since taken steps to allay the fears over people consuming content online rather than through the TV by announcing a tie-up with the BBC to launch a new subscription service later this year, which it hopes will propel it into the streaming market. The pair already have a joint US service used by 500,000 people, mainly British expats.
How to trade FTSE 100 losers
Brokers believe the small handful of stocks that have fallen in the early part of 2019 are now undervalued with six stocks earning a Buy recommendation, with particularly strong ones for both TUI and Vodafone. They also believe there is more room for Pearson to fall.
Below is a list of broker recommendations taken from Reuters as of 15 April 2019:
|Strong Buy||Buy||Hold||Sell||Strong Sell||Reuters: broker recommendation|
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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