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Newsround: Oil majors sink FTSE

10 August 2018

Tags: Macro Economics

FTSE News 

The FTSE 100 remained in negative territory as oil majors BP and Royal Dutch Shell failed to bounce back from earlier weakness. By the close the index was down 0.45% at 7,741.77.

Next week we see a number of announcements, in the early hours of Tuesday (14 August) Chinese industrial production figures are out (see Economic update). UK average earnings data is also published at a more sociable hour on Tuesday. Combined with the inflation figures next Wednesday (15 August) they should reveal how much pressure is on UK households and the potential readthrough to consumer spending. Later in the day on Wednesday we will get an insight into the confidence of the US consumer with the latest retail sales figures, followed next Thursday (16 August) by a similar release for the UK.

Sector in focus

One of the world’s largest office rental operators IWG (IWG) saw a massive sell-off in its share price on Monday (6 August) as the group walked away from three potential takeover suitors. Private equity firms Starwood Capital, Terra Firma and TDR have all been told by IWG management to take their buyout interest elsewhere. This extends the lists of investment firms that have cast covetous glances IWG’s way in recent months, only to be told to buzz off.

Onex, Brookfield and Prime Opportunities have all failed to win the IWG board’s backing, and now it is the turn of Starwood, Terra Firma and TDR have also walked away. Management are clearly confident in the growth prospects of the business – with demand benefiting from structural changes in the corporate world. IWG is a £2 billion-plus market value business with a long list of blue-chip clients.  But it has been under pressure from a new wave of emerging competitors, most notably the US shared office space group WeWork. This is illustrated by a 29% fall in first half operating profit, despite revenues increasing 7% in the six months to 30 June. Workspace (WKP) is another UK-listed name active in this space.

Economic Update

The use of copper in everything from electronics to roofing and industrial machinery means it is sometimes described as ‘Dr Copper’ for its ability to diagnose the health of the global economy. On this basis the world looks a pretty sickly patient – with the price of copper in freefall in recent weeks. In this context Chinese industrial production figures, out in the early hours of next Tuesday (14 August) UK time, could be interesting given China is a very significant consumer of the industrial metal.

ETF Watch 

Exchange-traded funds can be used to gain exposure to property. db X-trackers FTSE EPRA/NAREIT Developed Europe Real Estate (XDER) tracks a basket of property companies for an ongoing charge of 0.33%.

 Company Announcements

15 August – After getting ‘back into the groove’ in 2017 according to chief executive David Stevens, investors will hope that insurance firm Admiral’s (ADM) form has been continued in the first half of 2018 when it reports interim results. It will be worth keeping tabs on the combined ratio for its car insurance business which hit 80% last year – the lower this figure the higher the implied level of profitability.

15 August – Turnaround specialist Leo Quinn appears to have done a good job of steadying the ship at construction business Balfour Beatty (BBY) since taking over as chief executive in 2015. One area of concern may be the Aberdeen Western Peripheral Road project. In May the company reiterated guidance for a cash outflow of between £105 million to £120 million associated with the venture. Both Balfour and Galliford Try (GFRD) have had to take on extra costs since the collapse of partner Carillion.

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Writer: Tom Sieber Tags: Macro Economics

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