Rolls Royce leads the FTSE’s biggest movers in a less buoyant month for the blue-chip index.
Following the FTSE 100’s rally in May, its performance in June proved to be much more of a disappointment, with a return of -0.6 per cent.
‘Whether this is a case of the traditional summertime lull or a warning of something more serious remains to be seen,’ comments Russ Mould of AJ Bell.
Several burdens likely acted as a drag on markets, including heightened trade tensions between the US and both China and Europe, a strengthened dollar and sticky oil prices.
At the same time there was a sudden dip in banks’ share prices. This, says Mould, ‘must be watched with care, as it may hint at wider problems in the financial plumbing, should it continue.’
The biggest winner on the index was Rolls-Royce, returning 19.8 per cent over the month. The engineer and jet engine maker, which had previously seen a string of profit warnings and a dividend cut, is in the midst of a turnaround programme, led by its chief executive Warren East.
The most recent part of this plan included a 4,600 jobs cut for its Midlands operation in the UK. This jobs cut was then followed up by a further cost-cutting announcement at a meeting with analysts, allowing East to ‘declare that Rolls Royce is on target to exceed his goal of £1 billion in free cash flow by 2020,’ notes Mould.
Meanwhile, the food retailer Ocado continued to see strong performance, following its recent inclusion in the FTSE 100, with returns to shareholders of 14.4 per cent.
Coming in at third place was Sky, which saw gains of 8.5 per cent, largely on the back of an ongoing bidding war. While 21st Century Fox bid for the company at £10.75-a-share, rival Comcast has upped the stakes by offerings £12.50.
‘Ultimately, Sky looks destined to be bought by someone for a minimum of £10.75 a share, but a share price of £14.57 means that investors think of one of the big media beasts is preparing a knock-out bid to buy the highly cash-generative business,’ says Mould.
June was not a good month for housebuilders. First, Crest Nicholson, listed on the FTSE 250 rather than the FTSE 100, issued a profit warning owing to rising cost pressures. This cast a shadow over the whole sector, pushing shares in Persimmon and Berkeley Homes down by about 10 per cent.
This was then compounded when Berkeley, the second worst performer on the FTSE 100, repeated previous forecast warnings that profits may have peaked for this cycle.
Notes Mould: ‘Berkeley suggested its profits could fall by as much as a third this year owing to macroeconomic uncertainty, the ongoing impact of tax changes in the UK (which particularly affect high-end properties in the South East) and the increased cost of raw materials that has resulted from the pound’s post-EU referendum plunge.’
Those factors are also likely to act as a drag on the profits of rival homebuilder Persimmon.
Meanwhile, shares in the cruise giant Carnival slipped due to poor first half results, which the firm blamed on higher fuel costs and a stronger dollar.
However, notes Mould: Management did look to reassure shareholders by pointing to strong future bookings at prices above those recorded a year ago, in what is an essentially oligopolised cruise market.’
|1||Rolls-Royce||Aerospace & Defence||+19.8%|
|2||Ocado||Food & Drug Retailers||+14.4%|
|4||Reckitt Benckiser||Household Goods||+8.3%|
|96||Melrose Industries||Construction & Materials||-9.9%|
|97||Carnival||Travel & Leisure||-10.1%|
Source: Thomson Reuters Datastream. *Covers period 30 May to 30 June 2018