MARKET WATCH
Getting closer to the big event
EHN’s financial analyst Nick Spoliar of WH Ireland surveys the scene following the Government’s triggering of Article 50 to start the Brexit process, and reviews the latest news from Ashtead and Speedy.
“Fog over the Channel, Continent cut off,” as a famous headline in The Times declared in the 1950s. However, the real fog is about what happens now that the letter has been sent and Brexit edges closer - having up to now seemed reassuringly far away. Sterling could come under further pressure, a benefit to dollar earners. UK inflation is rising already (2.3% in February) and the hire sector will continue to experience a lift in input costs. The construction sector client base will remain mixed as in the most recent CBI figures - no change there.
Looming over all of this is the big conundrum on interest rates. The UK economy has surprised by its strength since the vote on 23 June last year. Rising inflation would suggest tightening rates following the example of the Federal Reserve Bank in the US. Brexit uncertainty points the other way - firmly against the Bank of England choking demand by raising rates.
Certain sector fundamentals remain unchanged, notably the housing situation. While, indeed, the ‘second-hand’ housing sector is under increased pressure, particularly in London and the South East, government commitment to new-build appears iron-clad. The social housing deficit is the logical conclusion of local authorities ceasing to build in the 1980s. Enter the government’s PRS (private rented sector) schemes and the £3bn Home Building Fund which Philip Hammond pulled out of a hat in October 2016.
Certain things we would like to know. Number 1, how is the Chancellor going to fill his £500m black hole as a result of cancelling the National Insurance tax grab? This will remain a concern until resolved. Secondly, following the Lavendon exit from the market at a decent multiple, where may the M&A (mergers and acquisitions) hand of fate hover next, particularly in view of the relative cheapness of UK assets to a foreign buyer at current exchange rates?
The quoted companies are in the middle of their natural reporting season. Ashtead* reported Q3 results on 7 March. With plenty of help from the exchange rate, revenues were 30% ahead year-on- year for the nine month period, and a still robust 13% ahead in constant currency terms.
Speedy’s* 7 February update showed that the business is trading ahead of expectations under new management (reconfirmed on
9
A-Plant has purchased the Kier hoist business, which will be incorporated into its specialist GB Access hoist hire division.
31 March), and in December it even made a (very modest) acquisition. HSS* has provided no new news since raising £13m at just over 83p on 22 December 2016 to strengthen the balance sheet and invest in the fleet. The shares are now 71p and results are on 5 April - watch this space.
We expect a good set of results from Vp to be announced on 6 June - we are Buyers of this stock. By then perhaps some of the fog will have lifted.
• *Not under formal research coverage, with the exception of Vp.
WH Ireland states that this is not an offer or a solicitation to buy or sell any security. Estimates contained herein are sourced from already published information (Bloomberg). See
http://wh-ireland.co.uk/website-policies#disclaimer for full disclaimer. WH Ireland Ltd is authorised and regulated by the Financial Conduct Authority (Financial Services Register number: 140773)
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