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Tuesday, January 27, 2015

FTSE falls on weak US data but Centrica and utilities climb

Investors look for safe havens as American worries and Greek concerns hit marketsAfter taking the Greek election more or less in their stride immediately following the weekend vote, markets suddenly turned sharply lower as the mood changed.Concerns about the financial implications of the latest tensions in the eurozone hit the banking sector, while worries about the state of the US economy also re-emerged to hit investor optimism ahead of this week’s Federal Reserve meeting. With poor US durable goods figures and disappointing results from a range of American household names - including Microsoft, Pfizer, Procter & Gamble and Caterpillar - Wall Street plunged more than 360 points in early trading and was still down nearly 350 by the time London closed. Germany’s Dax dropped aorund 1.7% and France’s Cac closed down 1.3%. So the rally insipired by last week’s quantitative easing announcement from the European Central Bank has well and truly run out of steam.We think margin tailwinds in the UK and North America are overlooked and are now more relevant than the impact of lower oil and gas prices upstream. We increase our target price to 310p (from 290p) and upgrade our earnings per share for 2015 by 9%, but reduce 2016 and 2017 by around 3%-5%.Results are due 19 February, and we expect management to lay out its remedial plans for the upstream. The last two periods where gas prices fell for a sustained period (2006-07 and 2008-10), Centrica outperformed the FTSE100 by around 23%, albeit with a circa six-month lag.It’s not often that Carpetright can say that “Full year expectations are unchanged”, but today’s third quarter update (13 weeks to January 24) is boringly in-line and so new chief executive Wilf Walsh still hasn’t issued a profit warning yet. UK like for like sales growth has edged up from the first half level of 6.5% to the heady levels of 7.5% (versus +1.9% in the third quarter last year) and even Europe is up a bit. Gross margins are down, but by no more than expected and the issue is how much of Carpetright’s improved trading is down to the market and how much to “more effective promotional activity”. Continue reading...


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