Insurers Weigh On The FTSE 100 As Saga Sinks

Insurers Weigh On The FTSE 100 As Saga Sinks

CMC Markets  | Apr 04, 2019 09:35

It’s been a disappointing start for markets in Europe this morning after several days of strong gains as investors start locking in profits on recent gains. German factory orders for February plunged 4.2%, against an expectation of a gain of 0.3%. This really shouldn’t have been a surprise given how poor recent manufacturing PMI data has been.

Cruise ship operator and insurance company Saga (LON:SAGAG) has had a disappointing year after reporting a loss of £134.6m, after taking an impairment of £310m in respect of goodwill, with the shares plunging over 30% to five year lows. They also cut the dividend by over a half from 9p to 4p. This is not good news for the company having reported a profits warning at the end of 2017 it would appear that the turnaround strategy is not working particularly well, and shareholders are likely to become even more restless, with the shares now down over 60% from their 2014 IPO price.

Even without the goodwill impairment profits were down 5.4%, due to lower margins in insurance, and in particular retail broking which saw a 19% fall in revenues, with management blaming a number of factors including price comparison sites. Its travel operations did improve though it is becoming apparent that while its target market is growing well, its customers do appear to be becoming more discerning, as the cruise market becomes more competitive.

Today’s sharp declines in SAGA have seen selling ripple through the rest of the sector, with Direct Line also falling sharply

In the retail sector Mothercare (LON:MTC) revealed that UK like for like sales declined 8.8% in its latest quarter, which while disappointing was an improvement on the previous two quarters. The company also managed to complete the sale of the Early Learning Centre for £13.5m, helping it to reduce its debt

Reports from Germany would appear to suggest that Italian bank Unicredit (MI:CRDI) is waiting to pounce on Commerzbank (DE:CBKG) in the event that the merger with Deutsche Bank (DE:DBKGn) fails to pan out. This is the sort of deal that would make more sense than trying to merge two struggling German banks, however it is still likely to face a significant number of obstacles.

Firstly it’s based on the current talks between Deutsche Bank and Commerzbank breaking down, but even if that does happen, which seems likely given trade union opposition, as well as the prospect of having to raise extra capital, they will also have to convince the German government who own a 15% stake in the German lender.

The bigger question is whether this is a wise move given the concerns about the Italian banking sector, the low profitability of the German banking sector, and the prospect that interest rates are likely to remain anchored to the floor for years to come.

The pound hasn’t really reacted to events in Westminster overnight where MPs voted by a single vote to force the Prime Minister to request an extension of Article 50, and prevent a no deal Brexit.

At the same time initial talks between Theresa May and opposition leader Jeremy Corbyn were said to be “constructive”, however none of this changes the legal position that the UK still leaves the EU in just over a weeks’ time, and that any extension would have to be agreed by the EU.

Voting to stop no deal doesn’t prevent no deal, and as last night’s events have shown Parliament still remains very polarised.

US equity markets saw another decent gain yesterday closing at a six month high after better than expected services and employment data for February, and despite the weakness being seen today in Europe still looks set to open slightly higher later today.

On the earnings front investors will be looking to the latest Q4 numbers from Constellation Brands. The company which is one of the biggest international drinks companies in the world, responsible for Corona beer, issued a profits warning at the beginning of this year, after reporting a 38% fall in profits.

It said it now expected annual profits to come in at $9.20c and $9.30c a share. The company blamed higher costs as well as its recent investment in Canadian cannabis producer Canopy Growth for the downgrade. New CEO Bill Newlands may well outline plans to cut some of the lower end of its wine portfolio given recent weakness in this area, and instead focus on the higher value and higher margin part of the business as it looks to monetise its recent venture into the marijuana business.

Dow Jones is expected to open 34 points higher at 26,252

S&P500 is expected to open unchanged at 2,873

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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