Edison Investment Research

Market Commentary - Housing, Infrastructure, Construction and Services

The year end closed strongly for the markets and the rally is set to continue today, according to trends in pre-market trading and in trading so far. In our note today we cover two topics, firstly the key themes for 2017 and secondly the moves last year. We shall cover our picks for 2017 tomorrow.

Trump wants to defeat ISIS and eliminate budget caps

Leaked memo outlines the President Elect’s defence priorities

A leaked Pentagon memo has given us a fascinating insight into President Elect Trump’s approach to US Foreign Policy. It suggests that Mr Trump is going to take a very different approach to handling Russia compared the current administration. His top four priorities are reported to be; defeating ISIS, eliminating budget caps, developing a new cyber strategy and finding greater efficiencies in the US Department of Defense (DoD). You will note that controversially Russia does not feature in this list. In today’s blog we examine what this new approach could mean for the defence industry.

Market Commentary - Housing, Infrastructure, Construction and Services

One curve ball already in the dead period around Xmas (HSS Hire’s £13m fund raising) and yesterday Bovis Homes delivered another in the form of a warning that output will be around 180 units lower than previous guidance, at around 3,975, in the year ending December 2016. The other news was that Loxam has stretched its wallet a tad further for Lavendon and is now at 260p per share with its offer. Again this is reported in the press so few additional comments are needed.

Tetragon Financial Group adopts IFRS reporting from 31 December 2016

Incentive fee crystallised to be paid in shares, restricted for five years

Tetragon Financial Group (TFG) has announced that it is adopting IFRS reporting for accounting periods ending on and after 31 December 2016. IFRS NAV is expected to be substantially the same as fair value NAV, which TFG has been reporting since September 2015. However, moving from US GAAP to IFRS increases the reported NAV of certain TFG Asset Management businesses, principally LCM and Polygon, to reflect their fair value, and will crystallise an incentive fee payable to TFG’s investment manager, Tetragon Financial Management (TFM). This incentive fee will be paid in shares, held in escrow until 31 December 2021, and subject to a clawback mechanism. Based on fair value NAV at 30 September 2016, the incentive fee would have been US$27.1m, as stated in TFG’s third quarter report.

Market Commentary - Housing, Infrastructure, Construction and Services

Xmas may be near but there is still an amount of activity to note. Civitas Social Housing has announced that it has spent a further £15m of the £350m equity it raised recently to buy 25 leases on 17 supported living properties. Has anyone noticed that US financial businesses are buying up UK contractors?

Market Commentary - Housing, Infrastructure, Construction and Services

The main reason to watch the markets at this time of the year is because a few curve balls are often thrown at investors. The news this morning that HSS Hire has conditionally placed 15.4m shares at 83.9p to raise around £13m is such an item. It’s going to be a long haul for HSS. The moves yesterday and for much of the Xmas period tell us little about likely future changes

Market Commentary - Housing, Infrastructure, Construction and Services

There is little news of note this morning but three items are worth bearing in mind, in our view,Firstly, RICS has become a little more positive about UK house prices in 2017 and indicates that a 3% rise is likely, the second item of interest which is that Telford Homes has announced it third Build to Rent venture in conjunction with M&G, Thirdly, JLIF has invested £42m to buy a 6% take in a project to deliver 27 new trains that will run on the Great Western line from next year onwards, in stages

Edison KOL call

Conversation focus

The third in our KOL series, Edison sponsors an interview between Max Jacobs (call leader) and Dough Hillblom, President of Arena Healthcare, a strategic consultancy focusing on payers and policy makers. The conversation featured a discussion on the PBM model as well as drug pricing and formulary trends. 

Market Commentary - Housing, Infrastructure, Construction and Services

Kier’s announcement today that it has won its rebid for Highways England Area 13 (Cumbria and North Lancashire) is good news. Rebids are usually tense affairs so its always a relief to win them. The sector performed well yesterday, ahead of the market which fell away slightly. The data show that the first quarter has usually been relatively positive for the sector. Whether it will follow the usual pattern next year is questionable given the prospects for inflation, employment and interest rates as well as the likely hiatus that invoking Article 50 by end March might create

Market Commentary - Housing, Infrastructure, Construction and Services

Speedy Hire has announced that it has acquired the brand, business and assets of Lloyds British Testing Ltd from its Adminstrator. As might be expected in the week before Xmas there is no scheduled news. But that does not mean things stop happening in terms of news flow. Today, in addition to Speedy’s announcement, we have news that a housing association is joining up with WELink in a JV to build six factories in the UK, each with a capacity to build 4,000 modular homes each year.