Post-budget stock market reaction and Restaurant Group

Post-budget stock market reaction

“There are numerous potential winners and losers on the stock market from yesterday’s Budget and the market is now getting its first proper chance to price in this news.

“Some of the announcements would have been made while the market was still open yesterday, although many investors won’t have had time to digest the information until later last night or this morning.

“So far the market reaction has been subdued. The only real stock to display a decent move is gambling group William Hill (up 3.4%) as the remote gaming duty hike from 15% to 21% is perhaps less severe than some people had expected.

“There was some speculation that Chancellor Philip Hammond would put up the duty to 25%, so the actual 21% figure is somewhat of a relief to many investors and to the gambling companies.

“Gambling stocks had been heavily sold-off in the run-up to the Budget, so today’s share price rise for William Hill can be considered as a relief rally.

“Mr Hammond’s declaration that we’re going to see an end to austerity is theoretically good news for outsourcing companies as many of them have big public sector contracts. A signal that the Government could spend more money may raise hopes of more outsourcing work. However, the market is so far not convinced as both Capita and Serco see no movement in their share prices today.

“Investors don’t appear to have recognised the potential good news for recruitment agency Staffline in the Budget, given how its shares are static this morning. The Chancellor wants to give a stronger push to apprenticeships. That’s relevant to Staffline as it bought a skills and training business in July called Learndirect Apprenticeships, which it calls the market leading Apprenticeship Levy provider.

“Many aspects of the Budgets are typically leaked to the media ahead of the event, so the market already had an idea about some of the big announcements in advance. That is certainly true this year with the Chancellor’s pledge to boost infrastructure spending, which triggered a hike in the shares of construction experts Balfour Beatty, Costain and CRH at the start of the week.

“On Tuesday most of their shares fell in value, perhaps as some investors took profits after “trading” the Budget news.

“The only one to buck the trend is Kier (+1.2%) which is seen to benefit from multiple bits of the Budget. For example, extra funding for high speed broadband in rural areas could give a boost to Kier’s infrastructure business where it is a major supplier to Virgin Media. Kier is also a key partner to local authorities across the UK with pothole repairs,” comments Russ Mould, investment director at AJ Bell.

Budget winners & losers: share price movements 30 October 2018 (first hour of trading)

Balfour Beatty -0.7% to 256.4p
Babcock -0.1% to 604.6p
Capita flat at 126.43p
Costain flat at 370p
CRH -0.7% to £21.96
Kier +1.2% to 865p
Staffline flat at £11.84
Serco flat at 95.53p
William Hill +3.4% to 211.9p

Restaurant Group

“Restaurant Group’s £559m bid for Asian restaurant chain Wagamama, funded by a £315m rights issue, looks a brave move given the saturated nature of the casual dining market and the iffy consumer outlook.

“Growth is about more than getting bigger and while the deal would add a little under 200 new restaurants to its 509-strong portfolio, there have to be serious question marks over the scope to expand Wagamama – even if it is a successful operator.

“One option which the company plans to explore is to convert some existing Restaurant Group sites into Wagamama stores.

“The fact Wagamama is being bought out of private equity ownership is not necessarily a positive either. While it is not always the case, private equity assets can often be under-invested as their owners have looked to squeeze every possible drop of cash out of them. The price paid by Restaurant Group for the business also looks fairly chunky.”

These articles are for information purposes only and are not a personal recommendation or advice.