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FTSE hits five week peak with Next leading clothing retailers higher

Discussion in 'Market News' started by Lily, Jun 7, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Commodity companies also in demand as dollar weakens on Yellen comments

    A rebound in clothing sales in May as the warmer weather brought out the summer shoppers has helped lifted previously becalmed retailers.

    The British Retail Consortium’s latest survey has pushed Next up 75p to £54.35, while Marks & Spencer is up 2.3p at 365.7p and Burberry is 15p better at £10.94.

    European markets have a clear appetite for risk this morning, as rising energy prices and a dovish Fed outlook help negate any threat from a potential Brexit in 16 days’ time. This risk-on environment has predictably seen flows into stocks at the expense of perceived havens such as gold, treasuries and the yen. As crude prices once more trade around the $50 mark, there is a feeling that hurdles are being overcome with regularity over recent months.

    The main catalyst for the stock continues to be the potential for excess capital to be returned to shareholders at the end of the year. As Direct Line moves towards an internal solvency model, capital requirements might decline, freeing up surplus in the process. In addition, upside risk to reserve releases combined with the ongoing tailwind of Motor rate increases, may further boost earnings hence excess capital generation. The attractive dividend yield (7% including a special dividend) and close to sector multiples (average PE 13 times 2017 estimates) warrant a hold recommendation.

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