Investors cautious as Greece uncertainties continue and UK trade deficit widensLeading shares have drifted lower ahead of the US jobs figures later, with Greek uncertainties remaining, and another profit warning from Tate & Lyle to add to the nervous mood.The FTSE 100 is currently down 26.42 points at 6839.51 as investors await the non-farm payroll numbers from across the Atlantic, with around 234,000 jobs expected to have been added last month. News that the UK’s trade deficit widened by more than expected in December, thanks to imports of cheap oil, has not helped.A third warning inside 12 months leads us to downgrade 2015 by 7% and 2016 by 18%. Bulk is underdelivering and supply chain issues are now revealed to have done permanent damage. We think the dividend is sustainable, which should provide support at around 550p, our new price target. But there are otherwise few immediate positives on this chilly February morning.We expect Tate to have a rough morning. Worth bearing in mind, then, is that this remains a soundly-financed and well-invested business, with a coherent strategy and a growth track record in its core. The problems remain primarily those of execution, which should be fixable. But that fix must come, and come soon.We cut Barratt from buy to hold as we no longer see enough upside. Barratt’s management has done a great job in transforming the company, working out of old land onto new land while reducing the balance sheet. Its London and South East exposure is around 40% of sales, which is positive because this area has seen the UK’s best job creation. To be more positive we need more clarity on volume ambitions beyond 2016 and returns to rise more quickly. Whilst this framework inclusion may be seen as a positive for Capita, we take the view that, as with most other re-procurement activities, margins under existing contracts are likely to decline as contracts are rolled over, with risk that competition for contracts is at a higher level. This does not of course indicate, or guarantee, any additional work for Capita. The negative performance of emerging markets in recent quarters and the resultant weak sentiment towards these markets leave Aberdeen and Ashmore trading at a discount to both their two-year and five-year ratings. We maintain our buy [rating] on Ashmore ....and raise our rating on Aberdeen to buy [from hold], reflecting a discounted valuation and the potential for yield enhancement. Importantly a positive overall survival benefit in the COMBI-d study forms part of the oncology asset sale to Novartis, $1.5bn contingent consideration determined by a positive overall survival outcome. This puts the final price paid by Novartis for GlaxoSmithKline’s oncology assets to $16bn, £4bn of which is due to be returned to investors via a B Share scheme following completion of the asset swap which also includes Glaxo’s purchase of Novartis’ Vaccines unit and the establishment of a Consumer Health joint venture controlled by Glaxo. The long awaited COMBI-d study reads out positively. This positive outcome will also trigger a $1.5bn earn-out from the disposal of the Oncology unit to Novartis, when it completes. Without a firm outlook in place and 2015 remaining a transitional year, it is too early to advocate putting new money in GlaxoSmithKline; we make no changes to forecast and re-iterate our hold recommendation. Continue reading...
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