Reckitt and Indivior soar on US settlement and shares in housebuilders lifted by property market data

Thursday, July 11, 2019 - 11:20

“UK and Asian stocks followed the upwards trend seen last night in the US after the Fed signalled an interest rate cut. The FTSE 100 advanced 0.2% to 7,548 and Hong Kong’s Hang Send index jumped 0.8%,” says Russ Mould, Investment Director at AJ Bell.

“Commodities were also in favour with oil rising 0.3% and, somewhat unusually for a market in risk-on mode, gold also advanced. That’s likely to be a result of renewed weakness in the US dollar as the metal and currency tend to move in opposite directions."

Reckitt Benckiser

“Being forced to foot a $1.4bn bill would normally be cause for anger and alarm, to say the least. However, shareholders of consumer goods firm Reckitt Benckiser have reacted surprisingly well to news of today’s big settlement with US authorities.

“The outlay relates to alleged fraudulent marketing of an opioid addiction treatment now held by Reckitt spin-off Indivior – whose shares have also moved higher on the news.

“Given how aggressive US regulators can be, there must be some relief that a line has been drawn under the issue and incoming Reckitt chief executive, Pepsi man Laxman Narasimhan, can start with a clean slate.

“Because the fine will be met through existing borrowing facilities and cash flow, Narasimhan will inherit a company in slightly straitened circumstances, particularly as the balance sheet had already been stretched by the 2017 acquisition of Mead Johnson for an eye-watering $17bn.

“And this could be a significant issue as several observers have identified a need for Reckitt to increase the investment behind its brands.

“The danger is that Narasimhan will be operating with one hand tied behind his back in his efforts to revive a business which has lost its way of late under current CEO Rakesh Kapoor.”

Housebuilders and Estate Agents

“Investors raced to snap up shares in housebuilders after the latest RICS survey showed some signs of recovery in the housing market.

“It says interest among buyers rose for the first time since November 2016, and that prices had risen outside of London, the East and the South East of England.

“Although it is too early to call a bounce-back in the property market based on one set of data, the news does offer a glimmer of hope for investors in housebuilding stocks.

“Many of these companies had recently indicated their best days were over in the current market cycle and that life was getting tougher. The people running these companies will therefore be rejoicing at the latest RICS survey.

“The biggest riser in the housebuilding sector on Thursday was Barratt Developments which yesterday issued a very upbeat trading statement with pre-tax profit guided to be ahead of previous market expectations.

“Investors were less interested in estate agents following the RICS data even though one would have thought a new lease of life in the market would benefit sales transaction volumes and therefore their earnings. Shares in both Foxtons and Savills, the two main quoted estate agents, barely moved.”

Housebuilders: Share price movements 11 July

Barratt Developments +3.2%

Crest Nicholson +2.1%

Taylor Wimpey +1.7%

Bellway +1.6%

Persimmon +1.5%

Berkeley +1.2%

Redrow +0.9%

Countryside Properties +0.9%

Bovis Homes +0.9%

Estate Agents: Share price movements 11 July

Foxtons +0.2%

Savills +0.2%

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

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.