Groundhog Day for the markets and SIG slims down on yet another profit warning

Monday, October 7, 2019 - 11:15

“The Groundhog Day nature of today’s markets continues to be in evidence at the start of the week as again the spotlight is on the battered trade relations between the US and China,” says AJ Bell Investment Director Russ Mould.

“This, plus continuing instability in Hong Kong, put Asian markets under pressure, although the FTSE 100 was only down a handful of points early on.

“The reasonably robust open on the UK market probably reflects some optimism that talks lined up at the end of this week between Beijing and Washington will make progress but it would be wise to adopt a ‘one bitten, twice shy’ attitude given previous hopes for a resolution have been dashed.

“With relatively few big economic announcements scheduled, the destiny of Sino-US trade relations and Brexit negotiations are likely to take centre stage, with a move towards an agreement between the EU and UK probably required this week if a no deal outcome or further delays are to be avoided.

“What happens on both sides of the Atlantic over the coming days could set the tone for equities in the remainder of 2019 and beyond."

SIG

“Insulation specialist SIG is the latest in a growing list of companies to sell off non-core assets. Given the gloomy market backdrop, one would suggest this trend has further to run.

“When times get tough businesses take a hard look at their assets and work out whether they would be better off having a tighter focus, concentrating on fewer things and doing them better.

“The key challenge is not to sell anything that could be a good earnings driver in more buoyant market conditions.

“SIG has issued numerous profit warnings in the past few years as the UK construction market goes through a very difficult patch. Right-sizing its business now could be a sensible thing to do, particularly as it is managing to sell assets on decent valuation multiples.

“Builders’ merchant Grafton recently offloaded its Plumbase UK plumbing and heating products arm and Belgian operations. Property group Unite has sold nearly £200 million of assets in the past few weeks, saying the disposals support a strategy of recycling assets to improve portfolio quality and maintain financial discipline.

“Shopping centre investor Hammerson has sold more than £500m worth of assets this year as it tries to strengthen its balance sheet and focus on the better quality properties in its portfolio amid a very difficult time for retail real estate.

“In the case of Workspace, the service office group last week sold a property in London at a 47% premium to book value, saying that was ‘well ahead’ of the return it could have achieved from redeveloping the asset.”

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.