Standard Chartered boosted by brokers but Burberry and Carnival fall backThe FTSE 100, having breached the 7000 barrier on Friday, continued its rally to close at another record high on Monday.The leading index added 15.16 points to 7037.67, but it was a fairly unconvincing performance, with investors cautious about the situtation in Greece as the country’s prime minister Alexis Tsipras met Germany chancellor Angela Merkel to discuss its proposed reforms to resolve its precarious financial position.[We] are cutting Luxury from overweight to neutral. The sector was yet another huge beneficiary of the currency move and we note that Hong Kong luxury sales are weakening again.Weir shares appear to be pricing-in a ‘V’ shaped second half recovery in the US horizontal rig count. The shares might be impacted by another outcome, such as an ‘L’ shaped stabilisation.The lack of earnings visibility at Weir today is almost unmatched in ourexperience of the sector (close perhaps to Cookson in 2009). Two major unknowns face Oil & Gas: a plummeting north American active horizontal rig count; and significant price pressure....This downturn appears to have been caused by higher supply at least as much as by lower demand; and so far supply-side response does not appear to be shrinking the production surplus.If [former chief executive] Dalton Philips was attending the Morrisons analyst meeting he might have wondered why he was dismissed. It seemed that everything at Morrisons was absolutely fine. Dalton’s plan was the right one, Morrisons key performance indicators were all going in the right direction and the cost saving, working capital and cash flow goals were all still on track. All that was apparently needed was more “focus, pace and energy”.However the guidance didn’t quite match the rhetoric. We thought the company would do a ‘kitchen sinking’ margin reset for the new year.A deep corporate renewal programme and a new and highly respected management will not be enough to reverse Serco’s negative share price trajectory, in our view. The new strategy of focusing on the B2G [business to government] business (the one the company originally tried to diversify away from) comes with high execution risk, particularly as the highly competitive UK outsourcing market may itself experience a post-election blip. At the top-line we now model -12% organic growth in 2015 followed by a further 2% contraction in 2016, driven by known contract attrition and a likely contraction in volumes. During 2015 Serco also faces contract renewals worth around 5% of sales and, in our view, this remains an area of potential downside risk. Continue reading...
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