Market report: Wall Street rises, Reckitt’s £1bn buy-back and Heineken’s lost summer
- All the main Wall Street indices push higher, bonds rally too. Microsoft gains, Alphabet mis-spells
- Oil eases
- Lloyds sees asset quality improving
- Reckitt announces £1bn buy-back and strategy update
- Heineken sales pressured by drab European summer
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“The bulls held sway last night on Wall Street with the Dow, the S&P and Nasdaq indices all moving ahead by around 0.6% or more. Bonds rallied too, with investors following renowned fund managers Bill Ackman and Bill Gross’s separate comments this week about seeing value reappearing in the US Treasury markets. Spirits were buoyant ahead of after-market results due from Microsoft and Google parent, Alphabet. In the event, Microsoft pleased with robust growth and confidence in the future growth of its cloud-computing division, Azure. The shares ended up 2.5% in after-hours trading. Alphabet was a different story, with the shares tanking by 7% in after-hours trading after the growth of their cloud division disappointed (more detail from HL analysts on this separately).
Oil markets eased further overnight, with Brent crude oil futures slipping modestly to stand around $88, around 10% below the highs reached in late September. Diplomatic efforts to ease the crisis in Israel, leaving traders increasingly wary of taking significantly hawkish positions. UK and European gas prices are trading little changed currently, suggesting a much less challenging energy outlook for winter 23/24.
Reckitt Benckiser have announced their Q3 trading update along with new strategy guidance from newly arrived CEO, Kris Licht. On the face of it, the numbers look fine enough, with good progress from the Health and Hygiene divisions, where underlying sales grew 6.7%, mainly driven by price and mix improvements. The nutrition division slipped backwards, as expected. Last year, their major competitor in the infant formula milk category had a supply problem which steered huge one-off volumes in Reckitt’s direction. Q3 and Q4 of the current year lap this period and with the competitor back in the market, volumes were always going to dip.
More attention is likely to go toward the group’s strategy update. A £1bn share buy-back grabs the headlines, but it may be the group’s retreat from a target of mid-20’s % operating margins that drives the shares today. CEO Licht sees solid underlying demand growth across the portfolio, but a need to sharpen execution in some areas. The shares have opened 2% lower in early trading.
Did you notice what a lousy summer it was this year? Heineken did. Their European beer volumes dropped 7.6% in response to endless weeks of cloud and drizzle. Revenues of €8.1bn were not far off expectations, with the group pushing prices up to cover rising cost pressures, even as volumes fell short. Overall, Heineken believe they have held or gained market share in over half of their markets, even when volumes have proven hard to grow. The group are sticking with their full year expectations; Heineken expect to deliver stable to mid-single digit growth in operating profit in 2023, despite the challenging environment. Broking analysts were forecasting a weaker outcome than this, so the shares are likely to find decent support today.”
