- Markets Bet on Fed Cutting Rates
- US Private Equity firm Trive to buy tenpin bowling operator Ten Entertainment
- British American Tobacco impacted by illicit vaping in the US, sees smoke-free future, but less profitable present-day.
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“Yesterday was all about markets fretting that the Fed would not cut rates anytime soon. Today they are back to believing that they will. Having pushed US bond yields all the way from 3.3% up to 5% in recent months, ten-year US bonds have been fighting back in recent weeks, with yields now back down to 4.2%. Bond prices rise as yields fall, and vice versa, and with the US bond market worth many, many trillions of dollars, this matters. Strengthening bonds makes banks feel more inclined to lend because their collateral is getting more valuable. When the markets get optimistic about bonds and interest rates, that tends to boost the economy, potentially pre-empting the Fed’s actual moves on interest rates. So, with the Fed wanting to be sure that inflation is truly tied down before it loosens policy, we’re going to see this guessing game, where the market tries to position itself ahead of the Fed’s next move, carry on some more. We’re in the phoney war stage of the economic cycle. The action last night was really all in the bond market, with stocks little changed on Wall Street. But Asian markets rebounded from yesterday’s weakness leaving things pretty much where they were.
Bowling alley operator Ten Entertainment Group plc (TEG) has agreed to a cash offer from US private equity firm Trive. Trive are offering 412.5p per share for TEG, which is a premium of almost 50% to their last traded price. Trive are a Dallas-based investment firm who say they are supportive of TEG management and their growth plans. For their part, the TEG directors seem to basically be saying that it’s an uncertain world and guess what, money talks. The price that Trive are offering is a hefty premium to TEG’s previous record high, reached before the pandemic.
British American Tobacco (BATS) have lowered their expectations for earnings over the next few years. North America is witnessing a wave of cheap, unregulated disposable vapes flooding the market, taking demand away from conventional tobacco and Big Tobacco’s expensively developed portfolios of next generation brands. BATS confess to some weak execution in their heated tobacco segment on top. It all adds up to a reduction in their growth expectations in the near term and the group now say it will be 2026 before they are back to delivering mid-single digit profit growth. The group are writing down the value of their acquired tobacco brands by £25bn as they reassess the long-term value of traditional combustibles. BATS shares are trading almost 5% down in early markets.
TUI Group, the leading UK and European holiday operator have reported a 139% surge in operating profits for their last financial year. If you wondered why your last holiday was so expensive, and you booked with Tui, well now you know. In their final quarter, revenues rose by 11%, which the group admit was driven mainly by pricing. The improved profits are helping to pay down debt, although some may wonder whether a group which raised €1.8bn from investors via a rights issue earlier this year is really making that much progress when debts only fell by €1.3bn. Either way, the group are confident that FY24 will see further progress, setting guidance at revenue growth of at least 10% and earnings before interest and tax to rise by at least 25% year on year. That probably says all you need to know about the cost of next year’s holiday. The group’s medium-term guidance is for high-single digit profit growth, reduced leverage and regaining a BB/Ba credit rating. The market was pleased with the update, lifting the stock by around 8% this morning.”
