Market Overview

Dear Investor,

The year of the dragon is proving lucky for Chinese stocks. Since mid-January, the FTSE China A50 Index, representing the top 50 companies in China’s A-share market, has rallied more than 18%.

Notably, China’s GDP growth has surpassed expectations in Q1 2024, indicating a strengthening economy. This is further supported by rising consumer confidence, evident in increased spending on services like travel, both domestically and internationally.

As a consequence, global investors are showing renewed interest in Chinese equities, gradually overcoming previous concerns such as trade tensions and regulatory issues.

Wishing you a fantastic weekend,

Tom

Market Movers

On the rise: BT Group (LSE:BT.A) +26.6% on the week

BT’s share price surged this week as the new CEO, Allison Kirkby, conveyed a strong resolve to address short sellers.

These initiatives include the announcement of £3 billion in additional cost savings, building upon the company’s earlier achievement of hitting a £3 billion target for gross annualized cost savings ahead of schedule.

Additionally, Kirkby’s transparent communication about the company’s plans, including achieving adjusted revenue growth and increasing cash flow, contributed to bolstering investor confidence in BT’s turnaround strategy.

Overall, the surge in share price reflects the market’s favourable response to Kirkby’s proactive leadership style and strategic vision for BT’s growth.

REGENCY VIEW:

BT’s top line has been in steady decline for the past five years. However, double-digit margins ensures the business generates plenty of cash and a forward dividend yield of 6.8% looks attractive.

Long-term we believe BT lack financial quality. It’s debt laden balance sheet is likely to weigh heavy on the business and we see few catalysts to propel the stock higher once the short squeeze has finished.  

On the slide: Sage Group (LSE:SGE) -8.7% on the week

Sage Group experienced a significant tumble in its share price, declining over 10% to 1,070p, despite posting strong first-half numbers. The stock had seen remarkable growth over the past year, rising nearly 50% and reaching an all-time high of 1,285p.

Underlying earnings per share rose by 23% to 18.2p, aligning with forecasts. CEO Steve Hare noted the robust demand for Sage’s accounting, HR, and payroll products from small and mid-sized businesses, expressing confidence in the company’s strategy amidst ongoing macroeconomic uncertainty.

Looking ahead, Sage anticipates organic revenue growth for the full year to be “broadly in line with the first half,” signalling a slight downward adjustment from previous expectations.

REGENCY VIEW:

Sage is a high quality growth stock, but has a high valuation to match. This has been evident in the market’s reaction to what was strong results. Expectations have run ahead of themselves and the lack of an upgrade in organic growth forecasts have damped market sentiment towards the stock.

Sector Snapshot

The Telecom sector is top of the pops this week, buoyed by impressive gains from BT and Vodafone. Utilities have continued last week’s gains with solid performances from National Grid, SSE and Centrica.

Bottom of the pack is Energy with oil & gas giants BP and Shell losing ground during the last seven sessions.

UK Price Action

The FTSE’s bull run has taken a pause for breath this week. The index has consolidated sideways within a series of tight trading ranges. A break below the small consolidation range could trigger a deeper retracement.