News & Insight • Weekly Newsletters

28 July 2023 | Charlie Todd | William Buckhurst

That Was The Week That Was

MACRO

• The Federal Reserve raised rates by 0.25% as expected and left scope to raise rates again. Although predicting slower growth they have now officially taken the recession scenario out of forecasts
• New data showed that US economic growth was stronger than expected in the second quarter as GDP grew by 2.4% on an annualised basis
• The Bank of England announced that it was calling in former Federal Reserve chairman Ben Bernanke to lead a review to help improve its interest rate forecasting processes
• At a recent Politburo meeting, China’s leaders signalled more support for its troubled real estate sector but fell short of any major fiscal or monetary loosening
• In new Governor Kazuo Ueda’s first move, the Bank of Japan surprised markets by talking about increasing yield curve control from 0.5% to 1%
• Recession fears in the Eurozone increased as manufacturing PMI figures came in much weaker than expected

COMPANY NEWS

A very busy week for quarterly results from many of our portfolio companies:

• Microsoft announced a modest decline in its cloud division over the quarter. The shares finished down a bit after a very strong run
• Alphabet announced 8% quarter-on-quarter growth in cloud computing and for the first time Google Cloud is slightly profitable. The shares rose
• Visa reported a small beat on quarterly earnings as robust spending trends continued
• LVMH reported overall sales up 17% year-on-year (heavily driven by China) but revealed slowing demand in the US prompting the shares to fall
• Keyence released numbers a bit below what were lofty analysts’ expectations
• Rio Tinto announced record volumes but revenues down by 10% from last year due to weaker prices
• Thermo Fischer cut full year forecasts hurt by weak demand in the biotech sector
• Nestle released very solid numbers with 9.5% price growth and organic sales growth of 8.7%
• Unilever reported that pre-tax profit rose 21% on the back of 9.4% price rises
• Union Pacific shares rallied hard on news that Jim Vena has been confirmed as CEO, despite earnings falling short of expectations
• Shell shares fell a little on the back of an earnings miss
• Bristol Myers Squibb reported lower-than-expected results for the second quarter and cuts its annual outlook mainly due to generic competition for the multiple myeloma (MM) drug Revlimid
• Sanofi had very good numbers with some reasonable upgrades to earnings forecasts citing strong sales of anti-inflammatory treatment Dupixent and other closely-watched new drug launches

SMALL CAP NEWS

One thing to focus on at the moment is the revenue mix, whether that be the pricing/volume balance in consumer discretionary, or simply the end customer in the construction industry. This is particularly important in the aggregates sector where both Sigmaroc and Breedon this week announced numbers that were better than expected allowing management teams to keep expectations unchanged. Both were finding life tough in the residential property market but fortunately for both infrastructure is still progressing strongly.

Sigmaroc is smaller (£420m Market Cap), internationally diverse and more acquisitive having raised £30m of equity earlier this year. Revenue grew 13% year on year but has also divested some assets and therefore leverage at the period end stood at 1.7x. Breedon, the larger peer (£1,170m) and seemingly older in its business plan, previously bought wisely – buying Cemex UK assets in 2020 – but revenue was also up (11%), leverage is now only 0.7x and dividend was increased by 14% to 4p. Keep on mixing!

TECH & MEDIA NEWS

Kisses not tweets – it’s all change this week as Elon Musk rebrands Twitter to a symbol ‘X’. Internally the rebrand was swift, though the NYT reported “efforts to remove the Twitter name from the building encountered difficulties, when the San Francisco Police Department stopped workers for performing “unauthorized work”.. As of this morning, the letters “er” remain visible from the street”….

Meanwhile, Barbenheimer sets a new post-pandemic box office record for the best opening weekend raking in $244m between the two films

THIS WEEK IN HISTORY

1694: The Bank of England was founded. Initially based in rented premises including the Mercers' and the Grocers’ Halls it eventually moved into its current home on Threadneedle Street – a property which had previously belonged to the first Governor of the Bank, Sir John Houblon (late of the £50 note)

1909: General Motors Company acquired Cadillac for $4.5m.  Cadillac was founded in 1902 after Henry Ford and several of his partners left the Henry Ford Company due to a dispute with investors

IN OTHER NEWS

Japan’s 14^th straight year of population shrinkage to 122.4m – Wednesday’s new data showed that in 2022 deaths hit a record high of more than 1.56m while there were just 771,000 births

MARKET DATA

As at 28^th July 2023. Source: FactSet

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