News & Insight • Weekly Newsletters

24 November 2023 | Charlie Todd | William Buckhurst

That Was The Week That Was

MACRO

• There were no meaningful tax cuts in the Autumn Statement save for a small reduction in National Insurance contributions and confirmation of the permanent rates of capital allowances for businesses
• Business confidence in the UK looked to be improving as the UK Services PMI came in at 50.1, up from analysts’ expectations as well as October’s 49.5
• Meanwhile the Office for Budget Responsibility (OBR) said that, despite a £27bn windfall from higher tax receipts, they predict the UK economy to grow by just 0.6% this year, 0.7% next year and 1.4% in 2025. They warned that inflation – currently 4.6% – will fall to 2.8% by the end of 2024, and will not meet the Bank of England’s 2% target until 2025
• But a recent study by the Institute of Financial Studies (IFS) showed that over the past decade government borrowing has turned out higher than the OBR forecasts 75% of the time
• The anti-Islam, populist politician Geert Wilders won the most seats in the Dutch general election and will now look to form a government

COMPANY NEWS

• The best performing magnificent seven stock this year, Nvidia, enjoyed strong results again. The growth is impressive – the quarterly revenue has tripled year on year. Gaming still hasn’t recovered from 2022 but the main issue in the guidance were the worries about future orders from China and Vietnam. But according to the CFO, these declines will be offset by other regions
• Ashtead announced a profit warning, downgrading guidance due to several unique factors such as the US actors’ strike and less seasonal impact from wildfires and hurricanes
• Compass Group had in-line results and noted food inflation moderating and labour inflation still high
• Deere, the off-highway specialists, announced quarterly results that were good, but the guidance was poor with most of their end market sales falling 10%
• The German pharmaceutical company Bayer announced two poor bits of news with the company’s Monsanto unit ordered by a jury in Missouri to pay $1.5bn to three former Roundup weedkiller users. It also suggested it would halt a phase three trial in atrial fibrillation for a drug called asundexian due to lack of efficacy sending the shares lower by a fifth
• Strong results from the copper cabling specialists Volex enabled them to keep current guidance as the strength in selling into data centres offset destocking in the EV market
• Sky News announced that the Alphabet subsidiary Capital G was close to finalising a funding round to raise between £300m and £500m for Monzo which would value the latter at c.£4bn

POWER TO THE PEBBLE

The aggregates sector has been busy with Breedon announcing a positive trading update and upping guidance but the rock stars were SigmaRoc who revealed a groundbreaking €1bn deal to buy CRH’s European limestone business through a combination of debt and equity.

On the contrary, perhaps the Pebble Group (promotional merchandise industry) should look to their aggregate peers after they announced a large profit warning.

SMALL CAP M&A

A pre-Black Friday sale saw the telecommunications giant, BT, exploring the potential takeover of Music Magpie, which sells second-hand electrical goods. The valuation of the latter has fallen about 90% since listing two years ago.

Elsewhere, Velocys, a company which develops sustainable fuels for the aviation industry and is looking for further financing, announced to the market that it had also been approached for a takeover but at a 60% discount to the price!

AI WORLD

The Guardian put it nicely - OpenAI’s messy firing and rehiring of its powerful chief executive (Sam Altham – who was temporarily hired by Microsoft in the shake out) shocked the tech world. But the power struggle has implications beyond the company’s boardroom. It throws into relief the greenness of the AI industry and the strong desire in Silicon Valley to be first and raises urgent questions about the technology.

“The AI that we’re looking at now is immature. There are no standards, no professional body, no certifications. Everybody figures out how to do it, figures out their own internal norms,” said Rayid Ghani, a professor of machine learning and public policy at Carnegie Mellon University. “The AI that gets built relies on a handful of people who built it, and the impact of these handfuls of people is disproportionate.”

THIS WEEK IN HISTORY

1954: After 25 years the 1929 bear market draws stumps. The Dow Jones Industrial Average closed at 381.17 on September 3^rd 1929 and did not revisit that high until this week in November 1954

1985, Following Steve Jobs’ departure, Apple comes close to signing its own death warrant by licensing the Macintosh’s software programmes to Microsoft

MARKET DATA

As at 24^th November 2023. Source: InFront

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