US Payrolls, Frasers Group and Balfour Beatty results

US Nonfarm Payrolls (Nov) – 06/12 – The October payrolls report proved to be an unexpected surprise when it came in as hiring fell to its lowest level since the pandemic, as the US economy saw a mere 12k jobs added, well below the consensus of 106k. There had been an expectation of a slowdown due to effects of the Boeing strikes, as well as Hurricanes Helene and Milton but not on this scale. The slowdown was even more surprising since the ADP report showed a sizeable improvement on September’s 159k, rising to 233k. The weakness of the October jobs report was cited as confirmation that the Federal Reserve would look to cut rates again when they meet later this month. While the overall trend is that hiring has been slowing with the BLS also revising its numbers for the previous 2 months lower by 112k there is an element of confirmation bias in this type of argument. Fed chair Jay Powell recently suggested that a December rate cut wasn’t the lock markets might like it to be, and with the uncertainty of what a Trump Presidency might bring he’s right to be cautious. It's also sensible to look at the wider picture when it comes to the prospect of a rate cut. Hiring tends to pick up significantly in November and December as Thanksgiving and Christmas retail activity picks up. The recent jobless claims numbers showed weekly jobless claims slow to a 7-month low, although continuing claims rose to a 3-year high. Furthermore, JOLTS job openings are still well above where they were pre-pandemic at 7.44m, albeit well down from where they were a year ago. Expectations for this week’s jobs report are expected to see a sizable improvement on October, with the Boeing strikes now over and the disruption from the recent hurricanes washing out of the system. Unemployment is expected to edge up to 4.2%, with the headline payrolls number forecast to rise to 180k.       

European Manufacturing and services PMI (Nov) – 02/12 and 04/12 – The pressure on the ECB to cut rates by more than 25bps could increase this week when we get the latest manufacturing and services PMI numbers, from Germany and France. The recent flash numbers pointed to continued weakness in the manufacturing sector with both coming in at 43.2, as the French manufacturing sector slipped back after a tepid rebound from its August lows of 42.1. More worryingly for both the services sector which has been propping up Europe’s 2 largest economies this year is also now starting to feel the squeeze with German services slipping into contraction for the first time since March, while the French economy which received an Olympic sized boost in August to 55 slipped back into stagnation soon after and last month’s flash numbers saw economic activity slide to a its lowest level since January at 45.7.

UK Manufacturing and services PMI (Nov) – 02/12 – In the most recent GDP numbers we saw that the UK economy almost ground to a halt in Q3 slipping to 0.1% after a bumper first half. The election of a new government ought to have been a catalyst for optimism after the shambles of the last few years, unfortunately whatever optimism that may have been visible in the aftermath proved to be extremely elusive, as the new administration proceeded to talk the economy down by talking of disastrous inheritances and fiscal black holes, along with fancy sound bites about “fixing the foundations”. Unfortunately, the new government has done everything but, with consumer and business confidence collapsing in the face of an onslaught of new regulation and taxes. Since July economic activity has collapsed with services sector activity slipping to a 13-month low of 50 back in the latest flash numbers. Manufacturing PMI has also seen a slowdown sliding to 48.6 and the lowest levels since March. We’ve also heard various stories over the past few weeks of companies looking to cut jobs, and make savings in the face of the announcements of recent tax rises which doesn’t augur well for the outlook as we head into 2025. There is a very real risk that the UK economy could be heading for stagnation at best over the next few quarters              

Frasers Group S1 25 – 05/12 – Frasers Group boss Mike Ashley has never been one to shy away from criticising politicians when he feels that the government of the day isn’t doing its bit to support the retail sector. It is therefore surprising that in the midst of criticism aimed at the new Labour administration he has been notably quiet of late. Perhaps that is because he is somewhat distracted by continuing to add to his sprawling retail empire. The owner of Sports Direct is currently embroiled in an attempt to become CEO of Boohoo, which he hopes to add to his stable of brands like Evans Cycles, Game, Jack Wills, as well as Gieves and Hawkes. He also has stakes in Hugo Boss, Asos and Mulberry. In this week’s latest trading update which will be the first one since a decent set of full year numbers back in July we’ll get a snapshot of how the business is doing having seen JD Sports shares suffer a big nose dive only last month after a weak set of Q3 numbers which saw sharp declines in like for like sales, not only in the UK but across all its regions. This time last year Group revenue saw a 4.4% increase to £2.77bn, in H1, while gross margins also increased. It will be interesting to see whether this trend has been sustained or whether the retailer is on target to meet its FY25 profit target guidance of between £575m and £625m given the higher costs the business is likely to incur as a result of the recent budget.                 

Balfour Beatty Q3 24 – 05/12 – Under CEO Leo Quinn the Balfour Beatty share price has continued to go from strength to strength. Brought into the business at a time when the construction industry was in crisis, along with the collapse in Carillion the focus on high margin contract work, particularly in the US and UK has continued to reap dividends. The refusal to compromise on that central tenet and eschew low value contracts has seen the shares continue to push higher, pushing through its 2023 peak earlier this year to close in record high levels for the share price. At the end of its last fiscal year the shares popped higher after the company reported a 7% increase in revenue to £9.6bn, and a 2% rise in underlying profits from operations to £236m, while increasing the dividend by 10% to 11.5p per share, and announcing a £100m share buyback. Total profits did see a 10% decline mainly due to lower-than-expected gains in investment disposals as well as a £55m increased tax charge. In August the positive momentum continued after Balfour announced a solid increase in pre-tax H1 profits to £112m, with revenues also seeing an improvement to £4.7bn, compared to the same period a year ago, with the order book remaining steady at £16.5bn. Since August Balfour Beatty has announced two further contract wins, a £363m contract with National Grid to replace the electricity high voltage network between Bramstead in Suffolk and Twinstead Tee in Essex. Earlier this month the company was also awarded a $746m contract to rebuild parts of I-35 through Austin in Texas. The company also appears to be well positioned when it comes to its involvement in new energy infrastructure projects in the UK, working with National Grid and SSEN with the potential for involvement in up to £2bn worth of extra work in Scotland.

Berkeley Group S1 25 – 06/12 – Housebuilders have always tended to be a decent economic bellwether when it comes to the wider UK economy, although Berkeley Group does have a habit of being slightly more resilient when it comes to economic downturns given that its houses tend to be at the upper end of the price spectrum, and less susceptible to the peaks and troughs of the more traditional housebuilders like Taylor Wimpey, Barratt and Persimmon. Nonetheless the sector hasn’t had a great year, with all the major housebuilders seeing declines since September. In its recent trading update Berkeley reported that it was on target to achieve its pre-tax earnings guidance for the full year of £525m, with pre-tax profits expected to be weighted towards H1, with operating margin slightly ahead of the long-term range of between 17.5% and 19.5%. A special dividend of £184m, and a share consolidation was also approved at the AGM.