The dark fiscal clouds which are hanging over the UK and which have led to another boost in government borrowing took some of the shine from a generally positive open for the main indices. The , somewhat insulated from domestic constraints given its large exposure to overseas markets, advanced at a measured pace, with taking the early lead after the property development company pleased with a trading update which revealed improving occupier sentiment.
Elsewhere, the UK banks readied themselves for the imminent third quarter season with gains which consolidated what has been a strong performance across the board in the sector this year, given their prodigious cash-generating ability, strong shareholder returns and stable capital cushions.
The FTSE 100 is now some 1.2% from the record closing high it set earlier in the month amid a performance which has resulted in a gain of 15.4% in the year to date, let alone the additional bonus of an average 3.2% dividend yield across the index.
Meanwhile, on Monday, US markets resumed where they left off and began the week on the front foot, buoyed by optimism around the current earnings season, an apparent softening of tone between the US and China and the possibility of an end to the government shutdown this week.
shares led the latest surge after an effusive broker upgrade, which lifted its shares by 4% to a record high on the back of anticipated demand for its latest iPhone design. will step up to the plate after the market close today with its third quarter update, and with more than 75% of the companies which have reported so far exceeding earnings expectations, the scene is set fair for further gains barring major disappointments.
Meanwhile, comments that the shutdown could end some time this week were also positively received, as it would remove the current data vacuum while also providing visibility for the upcoming interest rate decision, where a further cut is all but priced in by the market.
The general sway of sentiment back to a bullish mode pushed the main indices higher and indeed within sight of the record closing highs achieved earlier this month. So far this year, the is now ahead by 9.8%, while the benchmark S&P 500 and Nasdaq have powered ahead by 14.5% and 19% respectively.
Bunzl Q3
The savage share price reaction to the profit warning in April left a sour taste in the mouth for investors. A subsequent trading statement in June and half-year numbers in August steadied the ship to the extent that the shares have risen by 7% over the last six months. The resumption of the share buyback programme and a slower rate of decline in the operating profit margin perhaps signalled that the worst may be over.
However, much of the damage had already been done. The group’s largest market is North America, which accounts for over half of overall revenues, was the region is at the eye of the storm. A combination of sales weakness, product price deflation and costs following the rollout of its own branded offering led to suspending its share buyback programme in an effort to stabilise its balance sheet.
The previous profit warning also led to questions surrounding the group’s bolt-on acquisition strategy, which had served the group so well over recent years. Even so, the group is sticking to its knitting and has made seven acquisitions so far this year, which has added 1.4% to the overall growth number and with an active pipeline in progress.
The outlook has been maintained despite these acquisitions for moderate revenue growth for the year, with operating margin estimated at just below 8%, compared to 8.3% previously. Although the group enjoys geographical diversification in its sprawling global footprint, this also leaves it exposed to currency movements, and at actual exchange rates, group revenue dipped by 0.8% in the quarter.
Unfortunately, the current damage will take some time to repair, with investors often unforgiving, especially after a profits shock. The 31% fall in the share price over the last year represents a yawning underperformance compared to the 13% gain of the wider FTSE100, although ironically the decline has left Bunzl looking undervalued on a historic basis. However, the market consensus should be confined to a hold, also reflects investors’ reticence to become involved until such time as a sustained recovery is in evidence, which seems most unlikely this year.