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FTSE falters on renewed Brexit fears but Drax jumps on EU approval hopes

Discussion in 'Market News' started by Lily, Oct 17, 2016.

  1. Lily

    Lily Forum Member

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    Analysts say state aid ruling for power plant group could be key

    Leading shares have fallen back at the start of the trading week with the usual worries to blame: the outlook for the UK after Brexit, uncertainties around the US election and the prospect of the Federal Reserve raising interest rates before the end of the year.

    With signs of tensions in the UK cabinet over Brexit discussions, the FTSE 100 has fallen back below 7000 and is currently 46.27 points lower at 6967.28, not helped for once by further weakness in the pound. Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor, said:

    After the positive move in European equities on Friday, markets are giving back some of those gains today, as attention turns to Janet Yellen, Mark Carney and the bond market. Both Yellen and Carney have been attempting to manage bond yields higher from their record lows of the summer. Talk of allowing the economy to run hot by “temporarily running a high pressure economy” and being willing to “tolerate a bit of an overshoot in inflation” from Yellen and Carney respectively are having the desired effect in the short term as bond yields rise. However, the key questions are whether this strategy will herald the start of a prolonged bond market sell-off and if so, what effect this might have on other asset classes.

    Alongside the bond market, the other key theme dominating investor sentiment is US earnings, with a plethora of results due this week from companies including Bank of America, Goldman Sachs and Intel. With US markets close to record highs, the potential for surprises on the downside remains, even though expectations are low.

    GB power has been volatile and is pricing in scarcity across the coming five months. Drax is the clearest beneficiary and we raise our 2016 and 2017 EBITDA estimates around 10% and around 13% respectively for increased near-term power prices and the value of gas hedges.

    EC state aid approval on the contracts for difference is key (worth around 111p a share). It has been 286 days since the EC opened their investigation, and the two precedents were EDF’s Hinkley Point and RWE’s Lynemouth; approved after 294 and 285 days respectively. We expect a new dividend policy and investor day to follow any EC state aid approval.

    The end is in sight! It is almost 15 months since Ladbrokes and Gala Coral announced the intention to merge, and the final major obstacle to that deal being completed has now been overcome with the announcement of the sale of 359 shops to BetFred and Stan James. The sale of these units was required by the UK’s Competition and Markets Authority (CMA).

    As such, Ladbrokes and Coral were effectively forced sellers of these units which immediately put them on the back foot when it came to negotiating a price. A shortage of viable bidders was also a factor given that the CMA insisted that the buyers have demonstrable experience in running such shops.

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