5 October 2018

Scott Reid

5 October 2018

Good morning,

What’s worse than a smack in the chops, you ask?

 Well, two, of course.

This week’s bruised contenders are the institutional investors who were hit by the double disappointments of flotations by luxury carmaker Aston Martin and peer-to-peer lender Funding Circle.

The headline figures might not look great. By far the largest IPO on the London Stock Exchange this year at a valuation of £4.3 billion, shares in Aston Martin fell by 4.7% during the first day of trading on Wednesday, also making it one of the weakest debuts of 2018. Shares in Funding Circle, meanwhile, closed at £3.65 on Wednesday, the first official trading session – a 17% discount on last Friday’s IPO price. 

The two are completely different companies, but there is an argument that neither deserved such a sharp fall in their share price, or actually, that it really matters in the long-term. Founded in 2010, Funding Circle represents a genuine disruption of the fundraising market by cutting out the middle man for SMEs by linking them up with individual crowd funders. Aston Martin, on the other hand, whilst roughly a century older, has tied its intention to float with an ambition to disrupt the automotive market by expanding into electric vehicles.

All of which underlines the point of an IPO – to create a liquidity event or to raise funds for investment, not to make investors a quick buck. At this stage, then, an IPO that initially fails to impress - macro events aside - is a reflection that a company (and its advisers) may have misjudged the upfront valuation, rather than detracting from the underlying strengths of a company.

So it’s too early to tell whether the IPOs have been successes or not. But whilst the news this week has focussed on two newcomers to the LSE, today’s headlines may focus on an abandoned departure.

A shareholder vote was scheduled for the end of the month over Unilever’s plans to move their legal HQ to Rotterdam and quit the LSE, and threatened to intensify an already high-profile stushie. Unilever’s shareholders came out so strongly against the move that the company announced a U-turn this morning, noting the proposal “has not received support from a significant group of shareholders and therefore consider[s] it appropriate to withdraw” – showing there’s life in the FTSE yet.

News

Supreme Court nominee Brett Kavanaugh looks set to be approved by a conservative majority in the United States Senate today after two Republican senators suggested an FBI investigation found no corroborating evidence for claims against Kavanaugh of sexual assault. Focus on the balance of power in the Senate has shifted towards the Republican senator for Arizona, Jeff Flake, who ordered an FBI probe into the allegations. Two further Republican senators - Susan Collins of Maine and Lisa Murkowski of Alaska – have not said how they will vote, and could be key in a chamber vote contingent on a 51-49 Republican majority. (£)

Meanwhile, protests against the nomination has led to the arrest of hundreds of campaigners in Washington. The comedian Amy Schumer and model Emily Ratajkowski were among 302 detained on Thursday.

A British-Dutch intelligence operation has uncovered a Russian espionage mission to hack the international chemical weapons watchdog while it was investigating the Salisbury poisonings. Four officers of Russia’s GRU military intelligence service were discovered whilst travelling in the Hague as they attempted to hack the Office for the Prohibition of Chemical Weapons in April. Material seized from their laptops and phones has since revealed GRU links to a series of planned cyberattacks around the world. (£) 

The FT reports that plans introduced by Theresa May ‘to end austerity’ at the Conservative Party conference could cost up £35 billion-a-year. The proposals to increase investment in the NHS, freeze fuel duties and increase council house building are said to have caused a rift between No 10 and the Treasury ahead of the chancellor’s Autumn budget due to be unveiled on October 28. (£)

Business & Economy

New car sales in the UK fell by a fifth in September following pressure on manufacturers to comply with stricter regulation to limit emissions. Data from the Society of Motor Manufacturers and Traders showed the overall number of sales in September down to 338,834 – down 20% on the same period last year. Sales of diesel cars fell by around 43%, whilst those of hybrids and plug-in electric vehicles rose by 3.9%.

A report by the Institute for Fiscal Studies has found that men with fewer qualifications in manual jobs are the demographic most likely to be impacted by newly-erected trade barriers after Brexit. Workers in Northern Ireland and the West Midlands were also those identified at most risk regionally. The IFS identified 44% of UK exports, and more than half of all imports, as destined for/from the EU which could be at jeopardy if a frictionless trade deal is not agreed.

Meanwhile, a senior EU regulator has suggested trillions of pounds worth of financial contracts thought to be at risk in the event of a no-deal Brexit, could be protected under a revised transitional agreement. Steven Maijoor, who chairs the European Securities and Markets Authority, told an audience in Athens that he favoured an arrangement that would allow EU firms to access London’s clearing houses in order to ensure financial stability on both sides of the Channel.

Markets

What happened yesterday?

It was a lacklustre day for the London market, which slumped amid renewed trade war fears and a spike in US bond yields. By close of play, the FTSE 100 stood 91.94 points, or 1.22%, lower at 7,418.34.

Wall Street opened lower after optimistic views from the Federal Reserve that the US economy would expand for “quite some time”, and thereby reinforce the need for a December interest rate rise, pushed government bond yields to a seven-year high. The appetite for global stocks was pushed further lower after a Bloomberg report implicated the Chinese government in a widespread cyber-attack of America’s largest companies.

In corporate news, fears of slowing demand in growth-driver China hit fashion house Burberry (down 7.4%), whose share price slumped to a four-month low. Whilst fashion bore the worst of the day’s falls, there are fears that the wider retail sector could be affected amid signs that Chinese shoppers may already be reining in spending.

In the banking sector, a takeover by CYBG (up 2.65%) of Virgin Money (up 4.20%) was given regulatory approval, boosting the two challenger banks. Elsewhere, Spire Healthcare (down 5.99%) fell following its latest downgrade, this time by broker Jefferies who warned that Spire had suffered a “substantial” decline in NHS referrals and that its 2022 targets “already look ambitious”.

On the currency markets, the pound was up against both the dollar by 0.60% at $1.30, and the euro by 0.34% at €1.13.

AGMs
Fiske
Ilika
Marechale Capital
 
EGMs
Flying Brands Ltd
Tau Capital
 
Intl. Economic Announcements
(13.30) Continuing Claims (US)
(13.30) Initial Jobless Claims (US)
(15:00) Factory Orders (US)

Finals              
DFS Furniture
Strategic Equity Capital
 
Interims          
e-Therapeutics
Morses Club
Ted Baker

Trading Announcements   
AB Dynamics
Electrocomponents
Elegant Hotels Group
Gooch & Housego
Intercede Group 

Columns of Note

Jenni Russell writes in The Times that whilst a successful second EU vote might look favourable to Remainers, it may inflict lasting damage on UK democracy. Russell notes that erstwhile Leavers have now taken on a fierce tribal loyalty that could be fomented if they are denied their democratic voice. If a vote is to go ahead, she suggests that Britain’s leaders must also address why such a large portion of the country – on both sides of the debate – feel such a lack of hope in the state of the country’s politics. 

Simon English comments in a Tomorrow’s Business bulletin that companies have an opportunity to boost their reputation when taking a stand on social issues. Referencing a study entitled ‘The Dying Days of Spin’ by FleishmanHillard Fishburn, English suggests consumers respond positively to companies who intervene on issues they can directly influence, and that the demographic pushing the trend isn’t millennials, but the over 73s. When companies overreach, English thinks, consumers are canny enough to spot it.

Did you know?

There are 2,618 toilets in Wembley Stadium - more than any other venue in the world.

Parliamentary highlights

TODAY  

House of Commons

In recess until 9 October.

House of Lords

In recess until 9 October.

Scottish Parliament

No business scheduled.