Edison Investment Research

Market Commentary - Housing, Infrastructure, Construction and Services 9th May 2017

It’s all going to plan at Grafton, if we have understood correctly the update released this morning to coincide with the AGM later today. Mitie has announced a new non exec Chairman today, Derek Mapp, who joins the company after having similar roles elsewhere. The sector moves yesterday, as in the market as a whole, provided limited sense of direction.

Google vs Amazon - The time for Google to move is now

Amazon is far from standing still in its battle to win the smart home meaning that Google really needs to pull its finger out before it suffers a defeat not unlike that suffered by Betamax at the hands of VHS.

Amazon is already miles ahead of Google when it comes to devices, with over 10m in the hands of users (compared to Google Home at we estimate, 1m), but it is not stopping there. Last week, Amazon and Conexant announced the availability of the AudioSmart 4-mic development kit. This is a piece of hardware that allows third parties to integrate both the far-field microphone technology that the Echo products use to hear the user as well as the assistant itself.

Market Commentary - Housing, Infrastructure, Construction and Services 8th May 2017

Costain has issued a very short statement today to coincide with its AGM. Centrica’s update today is interesting for its comments on energy price caps. Friday last was a good day for stocks that have been out of favour in the last few months. The sector did a little better than the market last week with a 2.0% increase versus the market up by 1.1%. YTD the HICS stocks are up 10% with the housebuilders leading the way, up 12%, versus the 3.3% rise in the All Share.

Microsoft - Windows 10 S great for schools but not for the Surface Laptop.

For the education of children, Windows 10 S makes perfect sense but for college and everything else, we can’t see why anyone would want it. Microsoft held an education event this week where it launched a new version of Windows 10 called Windows 10 S and a stunningly beautiful laptop called Surface Laptop.

Not really an economic surprise…

Economic surprise indices and raw materials prices rolling over in Q2

One of the notable features of improving sentiment in global stock markets over the last 6 months has been its reliance on ‘soft’ economic data and a continuation of positive surprises. We cautioned in March that economic surprise indices were both seasonal and mean reverting and also highlighted the tightening of monetary conditions in China, historically linked to declines in iron ore prices. Six weeks later, global economic surprise has rolled over outside Europe while energy, coking coal and iron ore prices are falling sharply.

Market Commentary - Housing, Infrastructure, Construction and Services 5th May 2017

T Clarke, the small building services operation, has its AGM today and has issued a short update. The good news from Morgan Sindall and G4S in trading updates yesterday brought instant improvement in the share prices. Carillion fell again yesterday, by 2.6% to 211p. It has suffered from read across following Galliford’s views on the out-turn on the Aberdeen roads project (Galliford Try/Carillion/Balfour Beatty JV.

Market Commentary - Housing, Infrastructure, Construction and Services 4th May 2017

Morgan Sindall and G4S have updated this morning and made very positives starts to 2017; the former indicating that its earnings out-turn this year will be slightly ahead of previous expectations. Morgan Sindall is going through its best period of trading for several years. G4S has issued a short statement but when revenue is up 8.9% in Q1 on the same period in the prior year the numbers are doing the talking!

Sector view: Boring old insurance

In a fully valued market, a defensive sector priced sensibly

Our view that developed market valuations remain somewhat extended remains place. However, there is one sector which does not appear overvalued or compromised by legacy liabilities and questions over the future sustainable return on equity. Nor does it appear directly in the line of fire of technology’s advance like retail, or subject to on/off policy switches in China which have contributed to the de-rating of the resources sectors. European insurers appear from a top-down perspective to offer sensible valuations, reasonable returns on equity and high dividend yields in a low interest rate environment.

US strikes budget deal to end six month long Continuing Resolution

Trump secures 3% uplift for defence, half of what he requested

The Republicans and Democrats reached a compromise over the weekend to avoid a government shut down in the US. They have agreed at $1.6trn omnibus spending bill for 2017, with $593bn for defence. The US is currently in Continuing Resolution (CR) which as Ultra Electronics noted last week has led to lower levels of government spending in the first half of 2017. The House is expected to vote on the Consolidated Appropriations Act of 2017 today, followed by the Senate on Friday, putting it on track for enactment before Friday’s midnight budget deadline.

Apple FQ2 17– New normal

Apple reported reasonable results and in increasing both the dividend and the share buy-back program, ushered itself squarely into a new normal of pedestrian growth.

FQ2 17A revenues / EPS were $52.9bn / $2.10 broadly in line with consensus at $52.9bn / $2.02. Gross margins were 38.9% at the high end of the guided range and slightly above consensus at 38.7% as the iPhone 7+ was a stronger contributor to the mix than anticipated, lifting profitability.