Our head of investment rounds up the morning's big news.
European markets have opened mixed with most indices trading around the flatline. In the UK, property is in focus with earnings from Foxtons Group (LSE:FOXT) and the Halifax house price index, both suggesting that dynamics in the housing market are starting to improve.
Industrial equipment rental business Ashtead Group (LSE:AHT) is the top performer on the FTSE 100 after forecasting annual results ahead of expectations.
HALIFAX HOUSE PRICE INDEX
UK Halifax house prices grew by 1.1% in February month-on-month, outpacing expectations for a drop of 0.3% and accelerating from January and December at 0.2% and -1.3% respectively. Year-on-year, house prices grew by 2.1%, also ahead of forecasts and unchanged for the third consecutive month. Annual growth slowed across all nations and regions in February.
London is still struggling, with average house prices dropping by 0.9% month-on-month, as increased working from home flexibility post Covid prompts more individuals and families to move outside the city in search for a bigger property with more space and a garden. A typical UK property price now stands at £285,476 versus £282,360 last month.
While annual house price growth remained steady, the monthly reading has been picking up in recent months, reflecting some improvements in the underlying drivers. Although mortgage rates are stuck at historically high levels, they have been coming down, helping to support demand for properties. Plus, the latest GfK consumer confidence reading hit the highest since April 2022, with sentiment starting to recover from the lows last September.
The market however is not yet out of the woods, with pressures from a weak economy, double-digit inflation, the cost-of-living crisis, and the potential for further rate hikes this year from the Bank of England. This morning’s Halifax reading is markedly different to the recent report from Nationwide which saw year-on-year house prices drop by 1.1% in February, the first annual fall since the height of the pandemic in June 2020. Nationwide and Halifax use different data sources and methods when constructing the index, based on their own mortgage approvals, which could help to explain the discrepancy.
UK BRC RETAIL SALES
The British Retail Consortium’s total retail sales grew by 5.2% in February accelerating from growth of 4.2% in January but below the 6.7% rise from February 2022. Like-for-like sales increased by 4.9% versus 3.9% month-on-month.
While Valentine’s Day provided a boost to high street spending last month, year-on-year retail sales slowed amid a tough comparison to February last year when the UK economy was emerging from Omicron restrictions. The BRC retail sales figures are not adjusted for inflation, so it is likely that price hikes rather than volume increases are responsible for the growth, failing to capture the sluggish economic fundamentals.
The macroeconomic backdrop is still tough in the UK, with weak consumer and business sentiment, slow economic growth, rampant inflation and rising mortgage rates. Last month, the Office for National Statistics reported that UK retail sales decreased by 5.1% year-on-year, the tenth consecutive monthly drop which was the longest run since the 2008-09 financial crisis.
Greggs (LSE:GRG) reported full-year pre-tax profit up 1.9% to £148.3 million versus £145.6 million last year, meeting analysts’ expectations. 2022 total sales grew by 23% to £1.51 billion versus £1.23 billion year-on-year. It recommended a final dividend of 44p per share, taking the total ordinary dividend per share to 59p versus 57p in 2021. Greggs is targeting 150 net store openings this year as it continues with its expansion plans.
Greggs reported robust sales as demand from on-the-go workers for its low price point offering of sausage rolls, coffees and other drinks and snacks proved to be resilient amid the challenging backdrop of a weak consumer and slow economic growth. However, cost inflation of 9% weighed on its bottom line with pressures from rising energy bills, ingredients, and labour costs. The UK bakery warned that cost inflation will continue to be a challenge in the year ahead, putting pressure on shares today.
Since new CEO Roisin Currie took to the helm in May 2022, shares have rallied significantly with the stock on the rise since the October trough, however gains have stabilised over the last month.
Foxtons reported full-year adjusted operating profit from continuing operations of £13.9 million, beating forecasts for £12.5 million. London’s largest estate agent said trading in January and February had met its expectations with mortgage rates easing and buyer activity starting to pick up. Foxtons has been returning cash to shareholders in 2022 through a £4.9 million share buyback and a total dividend of 0.9 pence per share.
Foxtons highlighted key market risks including the cost-of-living crisis, a ‘reduction in London’s standing as a major financial city’, the availability of mortgage finance, ongoing geopolitical risk and changes in government policy. CEO Guy Gittins said some of Foxtons’ estate agency DNA has been lost; specifically, the innovation, brand prominence and single-minded focus on delivering the best results for customers. However, shares are trading higher thanks to its bottom line beat and upbeat assessment of its outlook for the housing market, with property sales expected to recover in the latter part of this year.
Shares in Foxtons have had a very strong start to 2023, regaining ground to the tune of over 40% amid expectations that UK interest rates are inching close to their peak and inflation is finally starting to ease. After a period of weakness for the stock between February 2021 and October 2022, a revival in risk-appetite has helped to boost shares in recent months as investors price in the prospect of a recovery in housing demand.
Meta Platforms Inc Class A (NASDAQ:META) is planning fresh job cuts as soon as this week according to Bloomberg. It already slashed its workforce by over 11,000 in November, representing one in eight staff. Facebook’s parent company was caught up in last year’s ‘tech wreck’ which saw the stock shed 65% in 2022.
Meta has also been struggling with the macroeconomic downturn and increased competition. Fickle social media eyeballs have been favouring TikTok over Facebook, which has lost its appeal in recent years among younger audiences. CEO Mark Zuckerberg’s risky bet on the metaverse also failed to take off after it ploughed billions of dollars into virtual reality last year.
However, this year, price action has been more positive for the stock amid a broader rally for tech stocks. Investors have been encouraged by Meta and other tech giants’ plans to reduce staff and cut costs after the overzealous expansion in the run up to 2022.
In February, the stock jumped sharply after it reported fourth-quarter earnings which beat expectations and it returned cash to shareholders through a $40 billion share buyback programme. Year-to-date the stock is up nearly 50% and has been regaining ground since the November low.
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