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FTSE falls as Arm hit by Apple slowdown and oil drops on Opec impasse

Discussion in 'Market News' started by Lily, Apr 18, 2016.

  1. Lily

    Lily Forum Member

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    Leading shares slip back with technology and commodity companies lower

    In the wake of the weekend’s meeting of oil producers which broke up without agreement on an output freeze, commoditiy companies are helping drag the stock market lower.

    Technology firms are also under pressure after reports that Apple plans to reduce production of iPhones in the April to June quarter after sluggish sales.

    The Nikkei is reporting that Apple has extended production cuts into the June quarter. Negative read across for Laird (around 17% Apple), Imagination (around 50% apple) and Arm (around 10% Apple).

    Arm has been the darling of UK tech, but its story is changing. The Mobile tailwind is less assured, while new areas (Networking/Servers) are more competitive and fragmented. We model earnings per share more than doubling by 2020, but strongly believe the multiple the market has on that growth is too high. Into the first quarter 2016 print, we seek more comfort on i) smartphone chip pricing and ii) increases in accrued revenue.

    The prospect of Opec and other big oil producers freezing output... helped lift crude from its January nadir, but in the end it’s proved just too much for the Saudis to cut a deal with Iran.

    This was not a surprise – both sides had made their stances clear, although Saudi Arabia clearly thought Tehran might come to the table at the 11th hour.

    We retain a cautious view about the tour operators industry and still believe that it will need to continue to extract efficiencies to stay competitive with the associated one-off restructuring costs. However, following the escalation in geo-political risks recently, we feel that the underperformance is overdone as we still expect the European consumer to go on holiday.

    In our view, TUI continues to deliver a superior performance within its tour operation business. This is reflected in a stronger top-line evolution and also it has had a superior cash generation for shareholders. Furthermore, our analysis suggests that the TUI tour operation business is trading at a material discount to Thomas Cook if we put its Hotels and Cruises businesses on appropriate multiples. Finally, there appears to be strong interest in the Hotelbeds business, which we believe could lead to a sale price that is well received by the market.

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