- Tesla and Alphabet report sluggish earnings
- Informa finds Ascential essential
- Visa grows, but slows
- Unite raises £450m to fund growth
- Sterling eases to $1.289
- Brent crude oil – futures steady at $81.44
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“The interim results season is kicking off on both sides of the Atlantic and, so far, investors are underwhelmed by what they have seen. On Wall Street, which drifted lower across the board last night, investors gave the thumbs-down to figures from Alphabet, Tesla and Visa. Elon Musk presented the fourth quarter in a row where the EV giant failed to impress, sending the stock down 4% in after-hours trading. Alphabet, owner of Google, delivered revenues of $71.4bn, and earnings per share of $1.89. That was slightly better than markets had expected, but the stock eased back after hours as investors queried whether the vast sums being invested into Google’s AI capabilities were actually earning a return.
Sterling eased back to $1.289 in the face of a dollar that is making gains against all major currencies presently as investors reassess the US political outlook.
With little change to the state of play in the Middle East, Brent Oil futures were holding steady around $81.44, having slipped back from $87 at the start of the month.
If last night’s news was any guide, 2024 could be the year when markets start to talk about the So-So Seven, because what we saw from Tesla and Alphabet was just not enough to keep momentum in their stocks. AI has been such a driver of expectations and has led to an extraordinary surge in revenues for Nvidia as the hyperscalers like Google, Amazon and Microsoft’s cloud units race to build capacity. But at some point, that scale has to start delivering returns on capital and, so far, the jury is out. Tesla, for its part, is simply struggling to turn rising output into earnings, which came in well below consensus last night. Matt Britzman, equity analyst at Hargreaves Lansdown, gives his thoughts on that below. We also saw Visa delivering respectable, but unexciting growth last night, more from my colleague, Derren Nathan, on that later.
In the UK, Consumer Goods giant, Reckitt, reported interim results this morning, accompanied by a major strategy update. In a nutshell, Reckitt is focusing its portfolio down onto its core Power Brands and looking to sell out of the Mead Johnson baby formula business that once upon a not so long ago, was Reckitt’s largest ever acquisition.
Informa reports strong interim numbers this morning, with double digit revenue and profit growth, leading to an upgrade to full year expectations. But the focus will be on their announcement of the acquisition of Ascential plc for £1.2bn in cash. Ascential brings the Cannes Lions festival and Money 20/20 events into Informa’s own events division. Informa hail the potential to grow Ascential’s revenues through cross-selling and taking their brands into new territories. The cash bid of 568p comes at a premium of 53% to last night’s closing price of 371p and some 67% to the sixty-day volume-weighted average price. Some investors will be looking at Informa’s balance sheet though. The group had only just seen its credit rating raised to BBB by the major agencies. Adding £1.2bn of debt takes the group back up to the top end of its leverage range at a pro-forma 2.5x Net Debt to EBITDA.
Sales slowed at Luxury giant, LVMH, last quarter, making it the latest in a string of luxury names to report tougher trading. Organic revenues managed to inch ahead by 1%, down from a 21% growth rate this time last year. Much of the slowdown came from China, where sales fell 14%, although this was offset in part by a surge of 57% in Japanese sales. LVMH highlighted that Chinese luxury buyers were becoming more likely to spend offshore, especially in Japan and this switch away from Chinese domestic spending was impacting margins adversely. Shares in LVMH were trading around 4% lower this morning as the market digested the news of slower growth.
Last night, Unite Group announced a placing to raise £450m of fresh capital, which was successfully completed with the new shares placed at 900p, a discount of under 3% to yesterday’s closing price. The monies will allow Unite to increase their build-out of new student accommodation and also acquire assets from the group’s self-managed USAF fund. Unite’s stock is barely shifted on the news, down just pennies at 922p, suggesting investors are supportive of the group’s expansion plans. Unite’s move to lift output comes at a time when Universities themselves are increasingly struggling to fund their own activities, creating a potential opening for Unite’s own offerings to fill the emerging gaps.”
VISA
Derren Nathan, head of equity research, Hargreaves Lansdown:
“The market has become accustomed to Visa beating expectations. Last night’s in line report for the third quarter failed to impress, with the shares dipping 3.2% in after-hours trading. Volumes are still growing across the card network, but there’s a slowing trend that’s continued into the fourth quarter so far. Growth in the US is half of that seen in other markets.
On the financials, 9% growth in underlying net income to $4.9bn is hardly a disaster, but a mid-twenties earnings multiple warrants a more upbeat pace and it’s hard to see where that will come from. Compared to its arch-rival Mastercard, Visa’s volumes are heavily weighted towards the US where the cash-to-card transition is largely complete. Visa is upping its investments in innovation, almost a pre-requisite in the fast-moving world of payments, and new developments in security, authentication and contactless payments look promising. But for now, it’s the bread and butter of payment volumes and margins that will drive sentiment. On that front, the horizon is looking a little cloudy.”
Tesla
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“This felt like a classic set of Tesla results. The bears were treated to a fresh set of weak auto financials to back up their case, while there was just about enough chatter on Tesla’s other projects to give the bulls hope.
The next few quarters are key. The EV market may be taking a breather, but that can only be an excuse for so long. Tesla needs to stabilise auto margins to give a solid platform going into 2025 when the more affordable model comes along. If it can do that, the stock’s recent run-up can be supported, and attention will turn to the longer-term growth projects that underpin the lofty valuation.”
