Interactive Investor

Here's why FTSE 100 is in the blue

26th January 2017 11:17

Lee Wild from interactive investor

Seems the rots stopped for the FTSE 100, for now at least. It's quite an achievement given BT still shows few signs of a quick recovery, and index heavyweight Vodafone is nursing big losses this week. There are some grim statistics Thursday, too, but thankfully more than enough positives to even things out.

Last night's record high and spectacular break above 20,000 for the Dow Jones is more significant than one might expect. It's only a number, yes, but it psychologically important and shows short-sellers at the big figure have moved on. Current futures prices show the Dow extending gains this afternoon, way past 20,100.

As we discussed yesterday, it's evidence that Trump might actually come good on his pro-business policies. Ex-Goldman Sachs cronies on his team will also guarantee a lighter regulator touch on Wall Street. And he still seems determined to build "that wall".

Whether it happens, or not, Trump's making all the right noises, which is great news for US-focused infrastructure play Ashtead. Its share price is up a further 3% Thursday to another record high. Incredibly, they were worth less than 25p in 2008 and well under £8 eleven months ago.

There are doubts that Trump has enough projects to spend the promised $1 trillion on, but we hear he has built a growing list of potential money pits which UK firms will hope to work on.

Of course, with all the excitement around Trump and Brexit, we all need a little drink whoever your persuasion, either to celebrate or calm the nerves. Hardly surprising then that Diageo is raking it in.

Sales rose 4.4% in the six months to December, far more than the City had pencilled in. So did profit. Once acquisitions and extras are stripped out, so-called organic growth was also 4.4%, driven by better margins and productivity.

"We are confident of achieving our medium term objective of consistent mid-single digit top line growth and 100bps of organic operating margin improvement in the three years ending 30 June 2019," said chief executive Ivan Menezes as the shares jumped - up 5.6% to within little more than 20p from a record high.

A resurgent Royal Bank of Scotland is up 4% for a 7% gain for the week so far, after taking a big provision for its part in the sub-prime mortgage scandal that tipped the world into recession during the financial crisis.

State-owned RBS has put aside another £3.1 billion to do a deal with the US Department of Justice. That takes the total pot to £6.7 billion ($8.3 billion). Deutsche Bank ($7.2 billion) and Credit Suisse ($5.3 billion) have already paid up and, while RBS chief Ross McEwan says he still has no idea how much the fine will be, there's a feeling that this should cover it and finally put the matter to bed.

Elsewhere, drug giants Shire, AstraZeneca and GlaxoSmithKline are all deep in the blue, which is just as well as shares in highly-rated Unilever, fresh from the Marmite price hike episode, fell 5% to a 2017 low.

Underlying sales growth of 3.7% in 2016 and 2.2% in the fourth-quarter was less than analysts expected from the Domestos bleach-to-Magnum ice lollies maker. Flat volumes during the final three months of the year also disappointed.

"The tough market conditions which made the end of the year particularly challenging are likely to continue in the first half of 2017," warned boss Paul Polman. "Against this background, we expect a slow start with growth improving as the year progresses."

Accounting software colossus Sage also ran into trouble, dropping almost 3% and dipping below 600p briefly for the first time since June. Its first quarter was largely in line with expectations, but we had been warned that the start of 2017 would be slower. Shareholders must hope that business does pick up later this year.

They'll be desperate for better news at Daily Mail & General Trust, too. Its share price plunged by over 7% to its lowest in four months Thursday, most likely driven by a slight downgrade to growth forecasts at the dmg information division

"Forward sales bookings have, however, been slower than anticipated given challenging market conditions and, as a result, dmg information's FY 2017 underlying revenue growth rate is now expected to be in the mid-single digits, rather than the high-single digits previously guided to," we're told.

There's no change to absolute revenue or profit guidance for the year, though, and Numis Securities analyst Gareth Davies is puzzled by the share price reaction.

"We remain very comfortable with our 'buy' recommendation and 970p blended multiples based target. DMGT remains a key pick for us in 2017," he says.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.