News & Insight • Weekly Newsletters

14 February 2025 | William Buckhurst | Charlie Todd

That Was The Week That Was

MACRO

• US inflation data was hotter than expected as January CPI was 0.5% month on month (vs 0.3%) with yearly CPI of 3% also above consensus. The higher figure was led by items including housing, prescription drugs, care insurance and egg prices. Fed Chair Jerome Powell stated that the latest data shows that progress had been made but “we want to keep policy restrictive for now.” In reaction, the market is pricing in one remaining rate cut for 2025 (from two)
• President Trump is pro trade wars but anti actual wars it seems. He spoke with President Putin to begin talks on ending the war in Ukraine. Trump posted that he planned to speak to President Zelenskiy to “inform him of the conversation” while he had asked several US individuals, including Secretary of State Marco Rubio, to lead the negotiations for the US. Separately, US Defence Secretary Hegseth stated that Ukraine joining NATO was not realistic
• On the trade front, Trump upped the rhetoric by implementing 25% tariffs on all US imports of steel and aluminium, including major suppliers Mexico and Canada, starting on 12^th March
• The EU stated that it would respond to the 25% tariffs. European Commission President Ursula von der Leyen stated that “unjustified tariffs on the EU will not go unanswered – they will trigger firm and proportionate countermeasures.” Reports indicated that, in retaliation, the EU has already prepared multiple lists of American goods to slap tariffs on

COMPANY NEWS

• Hermes is a brilliant company and continues to trade superbly but, like its handbags, it is on a rather expensive valuation. Its sales were up 17.7% to €3,962m, 6% ahead of consensus. Growth across all regions (Europe +17%, Asia +11.5%, Americas +22.3%). Full year sales were up +15% to €15.2bn with the only negative being that margins were down -1.6% to +40.5%
• Moncler reported a much stronger than expected sales performance with the main highlight being the Moncler Direct To Consumer up +9% from zero in the previous quarter. Similar to the 10% improvement at Richemont and better than the 4% delivered at Gucci and LVMH
• SONY’s revenue of ¥4.41T meaningfully beat consensus of ¥3.76T. Excluding Financial Services, revenue growth was led by Gaming (+16%), Music (+14% y/y), and Pictures (+9% y/y). Management raised their guidance
• McDonald’s closed up 4.8% after reporting in line results whilst international performance was better than expected. Management commented that low-income consumers were still under pressure
• Travel and arriving. Both NatWest and Barclays have performed well recently but both finished lower on their results. NatWest beat across the board, upped their dividend by 26% and mentioned that the Treasury’s holding is now 6.98% from 38% in December 2023. Barclays shares fell 4.7% even though they beat consensus estimates. Investment Banking revenue increased 28% but left 2026 net income guidance of £30billion unchanged. With the surplus cash management announced a share buyback of up to £1bn
• Beer is back. Heineken bubbled up 14.1% after reporting that its operating profit increased 1.6% to €4.51bn vs €4.45bn expected with revenue in line with consensus. Beer volumes increased 1.6% vs 1.4% expected with overall growth of 5% better than feared and declared a two year €1.5bn share buyback
• Shopify closed up after reporting quarterly results which were good. Earnings per share were $0.99 (vs $0.34) with revenue up 31% to $2.81bn, above consensus
• BP had poor quarterly results but fortunately have an activist investor, so the shares were muted. Ahead of its important capital markets day later this month, the company promised a “fundamental reset” of strategy and drive improvements in performance all in service of growing cash flow and returns

CONSUMER INSIGHT

• Nestle shares rose 6.2% after reporting full year results that were better than feared. There was some revenue growth (2.2%) whilst profit margins (17.2%) were better. The guidance was muted due to investments for growth
• Coca Cola fizzed up 4.7% after reporting fourth quarter results. Earnings and revenue ($11.5bn) were both above consensus with 14% revenue growth in the quarter vs 7.2% expected being the main headline beat but volume and mix was also applauded. The company guidance was slightly muted mainly due to the foreign exchange headwinds
• Unilever shares fell 7% after revealing that they expect the first few months of 2025 to be slow, just like last year, as consumer spending continues to be under pressure.  They reported full-year underlying sales growth of 4.2% and operating margin of 18.3%, which were below estimates but expect growth to improve during the year. They are also looking to list their ice cream unit, which makes Magnum and Ben & Jerry’s, to simplify the core business

The Last Altz

Engelbert Humperdinck’s “The Last Waltz” spent five weeks at number 1 on the UK charts in 1967. The last two weeks have seen takeover approaches for two “alts” (alternative income trusts). It has been clear for all to see that many UK REITs or listed infrastructure funds trade on extreme discounts to their net asset values. This is despite, in most cases, the underlying portfolio of assets having performed pretty well. Inflation, and therefore rising bond yields, has been the main culprit; but there have been other contributory factors such as forced selling from large multi-asset funds seeing redemptions, as well as the growing withdrawal of large wealth managers from the investment trust sector.

This gaping valuation opportunity has not gone unnoticed. Last week we saw BBGI Global Infrastructure agree to a £1.06bn takeover from Canada BCI, one of the country’s largest asset managers, at a 21% premium to its share price. As we headed home late on Friday (Valentines Day) we were enamoured to see Assura, the £1.2bn REIT investing in GP surgeries and other healthcare assets, announce that it had received a preliminary approach from US private equity giant, KKR, and the UK-based pension fund, Universities Superannuation Scheme. No further details have been released at this stage; but, were a takeover to go ahead, we would expect a significant premium to the current share price.

The mood music for investing in “alts” has been depressing, to say the least, for over three years now. But there are early signs at the end of the evening that the band is livening up and Humperdinck’s  Last Waltz is on the dance card.

THE WEEK IN HISTORY

1933: Then President-elect Franklin D Roosevelt escapes an attempted assassination in Miami. A man shouting, “too many people are starving!” as he fired several shots at FDR – evidence of the terrible economy Roosevelt was destined to inherit and turn around. Stocks fall 2% the following day

1990: Drexel Burnham Lambert, the pioneer of junk bond trading in the 1980’s, led by Mike Milken, is forced into bankruptcy

As at 14^th February 2025. Source: InFront