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FTSE falls ahead of US jobs data, with Inmarsat and InterContinental on the slide

Discussion in 'Market News' started by Lily, May 9, 2016.

  1. Lily

    Lily Forum Member

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    Brokers downgrade satellite group while InterContinental’s figures disappoint

    Leading shares are heading lower again after Thursday’s brief respite, ahead of the day’s big economic event, the US non-farm payroll numbers.

    With investors seeking havens, gold and silver remained in demand, helping push Randgold Resources up 2.5% to £59.25 and Mexican precious metals miner Fresnillo 10p higher to £10.49.

    Inmarsat posted first quarter results below expectations and cut core 2016 estimated revenue guidance. The company highlighted tough trading conditions in its legacy business and also indicated that getting GX [broadband services] operational was taking longer than expected, delaying revenue generation. Positively, Inmarsat expects more revenues from Ligado and remains confident about the midterm outlook. However, in our view these results illustrate well the challenges the company is facing (volatile demand, ramp up of new product). Longer term we recognise the growth opportunities but also the fast growing supply in the industry. We cut estimates, and even after the stock price correction we consider that the valuation does capture the different downside risks. We remain underweight.

    InterContinental released a first quarter trading update showing a slowdown in revenue per available room growth to +1.5%. While this is partially due to the distortion of Easter timing and so should reverse in the second quarter, several markets are also subdued by weak oil markets (management says). More rooms were removed (8,000) than added (5,000) which needs further explanation but the company reported solid growth in net system size + 2.7% (742,000 rooms) and pipeline continues to build with 15,000 rooms signed bringing the pipeline to 220k with 45% under construction. With the $1.5bn cash return imminent, our price target of 2800p and hold recommendation remain unchanged.

    We think that Wesfarmers’ recent acquisition of Homebase may be one of the most significant corporate events in UK retail since Wal-Mart acquired Asda back in 1999. We believe that Bunnings will prove a formidable competitor to B&Q and reiterate our underweight rating on Kingfisher.

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