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“The big news of the day is the sharp decline in German factory orders, down 2.2% in May versus estimates for a 0.2% decline. This will worry the European Central Bank and raise expectations of more monetary stimulus in the near future. “Germany’s main stock market index, the DAX, was flat in early trading on Friday despite the economic setback. “In the UK, the FTSE 100 fell 0.2% to 7,590 with miners sinking on renewed concerns about the global economy and how that might impact commodities demand. Rio Tinto, Anglo American and Evraz were among the biggest fallers on the FTSE 100. Housebuilders were also out of favour,” says Russ Mould, Investment Director at AJ Bell.
SIG
“Investors got further insight into the dire state of the UK construction sector this week as a first half trading update from building products business SIG revealed a double-digit decline in like-for-like revenue for its domestic operations.
“The news from company follows on from figures earlier this week which showed that June was the worst month for the industry since April 2009, as well as several recent warnings from other construction-related firms.
“SIG, which specialises in areas like roofing and insulation, has no choice in such market conditions but to seek to renovate its business model.
“This includes taking costs out of the business. While cutting your cloth accordingly in lean times is a prudent approach, it has to be balanced against taking out too much capacity.
“Many potential customers are in ‘wait and see’ mode as they await any kind of clarity on Brexit. Should this be forthcoming, there could be a flurry of work as wheels crank back into motion. Suppliers like SIG are therefore in a tricky place.
“Another notable feature of today’s update is that a second half recovery is required to hit full year expectations. This is often a recipe for a future profit warning should the anticipated rebound fail to materialise and the company be unable to make up any shortfall.”
John Menzies
“The aviation services group has been caught up in the airline sector’s current turmoil and the fallout from concerns about slowing global economic growth.
“Airlines have been experiencing a surfeit of problems, from technical issues grounding planes to the need to reduce capacity due to excess competition. Cargo volumes have also been weak as companies start to become more cautious about economic conditions.
“Giles Wilson is only one month into his new permanent role as chief executive and so he’s not going to be best pleased about starting the new chapter of his career with a profit warning.
“However he gives an optimistic look at the long-term picture and to Menzies’ credit it has been winning quite a few contracts in recent months.
“The perils of being a service company means you are always reliant on customers not having their own problems.
“Menzies has control over delivering its service, such as making sure the work is done as efficiently as possible. Yet it has no control over what its clients are doing or the flow of cargo it handles. That means Wilson can only do so much to keep Menzies ticking over in hard times.”
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