FTSE posts worst quarter since 2011

Melrose’s successful bid for GKN helped the UK’s top share index finish the month on a positive note on Thursday and gave a mildly upbeat end to the FTSE 100’s worst quarter since 2011.

The blue-chip FTSE 100 (FTSE) was up 0.17 percent on the day at 7,056.61 points as traders prepared for a market holiday.

GKN (L:GKN) surged about 9 percent in late trading after Melrose Industries (L:MRON) announced it had narrowly clinched an 8 billion pound ($11 billion) takeover of the British engineering firm after a three-month battle for control.

The FTSE 100 ended the first three months of 2018 with a loss of 8.2 percent, its worst quarter since 2011 and making it the weakest-performing major European market so far this year. It was closely followed by Germany’s exporter-heavy DAX (GDAXI), which lost 6.3 percent over the same period.

British stocks had a bumpy first-quarter ride, marred by a spate of profit warnings and trouble in the retail and outsourcing sectors as Brexit uncertainty hangs over equities.

“There’s been negative sentiment towards UK equities for a significant period now, stemming all the way back to the EU referendum,” Laith Khalaf, senior analyst atHargreaves Lansdown (LON:HRGV), said.

“What we’ve had in 2018 is more of a global phenomenon, so we’ve had a bit of volatility returning to markets,” said Khalaf, adding that this is a more normal state of affairs for markets.

On the domestic front, high street stalwarts such as Debenhams (L:DEB), Mothercare (L:MTC) and Moss Bros (L:MOSB) have tumbled after profit warnings, examples of retailers struggling in a digital age.

The collapse of outsourcer Carillion (L:CLLN) has further dented confidence in UK domestic stocks, while peer Capita (L:CPI) has slashed profit forecasts and made plans to raise cash to avoid a similar fate.

The outlook is uncertain not just for UK domestics, however. A resurgent pound has reduced the forex-related boost enjoyed by big, international FTSE companies that benefited from an accounting boost following sterling’s slump in the immediate aftermath of the June 2016 Brexit vote.

A spike in volatility in February rattled global stock markets, which have also been hit by concerns over the prospect of a global trade war and a tumble in the U.S. tech sector.

Two FTSE 250 growth stocks I’d buy for my ISA

The FTSE 250 index, which contains the largest 250 stocks outside the FTSE 100, is home to a number of fast-growing companies. Today, I’m profiling two such companies that I believe offer excellent investment potential right now.

When Warren Buffett looks for investment opportunities, he seeks out companies that have strong ‘economic moats’. This is a certain set of conditions that allows a company to generate consistent profits every year, with little concern that competitors will steal market share.

One FTSE 250 company that looks to me to have a strong economic moat is UK property website Rightmove (LSE: RMV). The £4bn market cap company is the dominant player in the UK property search space, last year listing 1m residential properties and enjoying 1.5bn visits across all platforms. Its market share of traffic across both desktop and mobile was 73%, with the mobile component even higher at 79%.

Rightmove’s revenues and profits have grown significantly in recent years, and full-year results for FY2017 showed that the company still has momentum, despite the lingering uncertainty over Brexit and the housing market. Last year, revenue climbed 11% to £243m, with underlying basic earnings per share rising 14% to 163.3p. Looking ahead, City analysts expect a further 9% increase in revenue for 2018, along with an 8% rise in earnings.

Rightmove shares aren’t particularly cheap, as with analysts pencilling in an earnings figure of 177.1p per share for FY2018, the forward-looking P/E ratio is 24.5. Yet I think that’s a reasonable price to pay for a slice of the business, given the company’s dominant market position and growth prospects.

OneSavings Bank
If Rightmove’s P/E ratio is too high for you, check out OneSavings Bank (LSE: OSB). The challenger bank trades on a forward-looking P/E of just 7.2 – a valuation which doesn’t do the stock’s growth prospects any justice at all, in my view.

OSB is a specialist lender and retail savings group that offers residential, buy-to-let and commercial mortgages, secured loans, development finance and savings solutions. While the bank does face some headwinds in the near term, including increased regulatory costs and regulatory and tax changes in the buy-to-let market, a strong pipeline of new business in its core markets means that it is well placed to keep growing. As such, it should be able to continue generating attractive returns for shareholders.

For FY2017, OneSavings enjoyed loan book growth of 23%, generating a 21% rise in underlying profit before tax. Underlying basic earnings per share climbed 23% to 51.1p. While earnings growth may be a little subdued this year, City analysts still expect the group to hike its dividend by 17.5%, which would take the payout to 15p per share, a yield of 4% at the current share price.

The stock’s current valuation basically assumes the business is a basket-case, yet a dividend hike of 22% last year would suggest otherwise. This is one FTSE 250 stock I’m bullish on.

GKN lifts FTSE-100 as shareholders back Melrose’s £8.1 billion bid

Shares in GKN were sent soaring on Thursday after Melrose emerged victorious in a closely fought battle to seize control of the engineering giant.

The FTSE 100 Index lifted 11.87 points to 7,056.61, with GKN climbing 9% – or 40p to 463p – after shareholders backed Melrose’s £8.1 billion bid with 52.43% share of the vote.

The outcome brings to a close a bitter battle that has raged since January, although there are likely to be renewed calls for Business Secretary Greg Clark to intervene in the deal.

He has already called for “binding” agreements over Melrose’s proposals for GKN.

Melrose has stressed its commitment to improving “not only GKN, but the UK economy”, committing to keeping the firm listed in London and headquartered in the UK as part of a five-year pledge.

Unions and MPs have warned over asset stripping and flagged national security concerns, claims which Melrose has rejected.

Across Europe, Germany’s Dax surged 1.3% and the Cac 40 in France closed 0.7% higher.

On the currency markets, sterling drifted 0.4% lower versus the US dollar at 1.40 dollars, as figures from the Office for National Statistics (ONS) confirmed economic growth slowed to 0.4% in the final three months of last year.

The ONS revised up growth for the year as a whole to 1.8% from the 1.7% previous estimate, but this was still the lowest since 2012.

The quarterly national accounts data showed Britons turned to debt to support spending in the face of last year’s surging inflation, which outstripped paltry wage growth.

The proportion of total income saved by households dropped to 4.9% in 2017, its lowest level since records began in 1963, the ONS said.

Against the euro, the pound was 0.2% lower at 1.14 euro.

The price of oil took a hefty hit as traders continued to react to Wednesday’s report from the Energy Information Administration pointing to rising stockpiles of US crude. Brent crude was off 1% at 69.11 dollars a barrel.

In UK stocks, Medclinic marched higher after investors cheered the announcement of Dr Ronnie Van der Merwe as its new chief executive.

The group closed up 29.2p to 601p, after confirming the 55-year-old will succeed Danie Meintjes on June 1.

Dr Van der Merwe was previously the FTSE 100 firm’s chief clinical officer. It came as the company also announced that non-executive directors Nandi Mandela and Dr Robert Leu will retire from the board.

Banking giant Barclays pushed ahead after reaching a two billion US dollar (£1.4 billion) settlement with the US Department of Justice (DOJ).

It follows a three-year investigation into allegations that Barclays caused billions of dollars of losses to investors by “engaging in a fraudulent scheme” to sell Residential Mortgage-Backed Securities (RMBS) between 2005 and 2007.

The bank was said to have misled investors about the quality of the mortgage loans backing those deals.

The DOJ alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), based on mail fraud, wire fraud, bank fraud, and other misconduct.

Shares in the bank rose 0.5p to 206.5p.

The biggest risers on the FTSE 100 Index were GKN up 40p to 463p, Mediclinic International up 29.2p to 601p, International Consolidated Airlines Group up 17.6p to 614.6p, Fresnillo up 36p to 1,268.5p.

The biggest fallers were Prudential down 60.5p to 1,778.5p, Compass Group down 29.5p to 1,455.5p, Intercontinental Hotels Group down 76p to 4,268p, Johnson Matthey down 50p to 3,042p.