Market Overview

Dear Investor,

It’s been a big week for the UK economy, with several key data releases providing a mix of optimism and caution.

True to form, the BoE played it safe on Thursday, deciding to hold interest rates steady at 5.25%. This “finely balanced” decision might have dashed some hopes for a pre-election rate cut, but it wasn’t entirely unexpected.

The Monetary Policy Committee’s seven-to-two vote reflected a cautious optimism, with some members suggesting that a rate reduction could be on the table as early as August, provided there’s more evidence of a sustained drop in inflation. BoE Governor Andrew Bailey underscored the need for certainty, emphasising that inflation must remain low before any rate cuts are considered.

Rounding out the week, this morning brought some unexpectedly good news on the retail front. British retail sales rebounded sharply in May, with a 2.9% increase in the quantity of goods purchased, thanks to warmer weather boosting spending on clothing and furniture. This was significantly higher than the 1.5% rise economists had forecast.

Adding to the positive sentiment, consumer confidence rose for the third consecutive month in June, reaching its highest level since November 2021, although it still lags behind pre-pandemic levels.

These data releases together paint a picture of a UK economy that’s cautiously moving in the right direction. The inflation rate hitting the BoE’s target is certainly a milestone worth celebrating, but the persistent strength in core and services inflation suggests there are still challenges ahead. The BoE’s cautious approach to interest rates reflects this nuanced reality, balancing the need for economic stability with the pressures of inflation.

Wishing you a fantastic weekend,

Tom

Market Movers

On the rise: Games Workshop (LSE:GAW) +12.8% on the week

Games Workshop’s share price surged higher this week following a bullish trading update that showcased significant growth.

In addition to strong core revenue, Games Workshop also reported an increase in licensing income, which is projected to be £30 million compared to £25 million in the previous year.

The Group’s estimated profit before tax (PBT) is expected to reach at least £200 million, up from £171 million last year.

Games Workshop maintained a solid track record of returning value to shareholders. The company declared and paid dividends totalling £138 million, equivalent to 420 pence per share. This is a slight increase from the previous year’s £136 million and 415 pence per share.

REGENCY VIEW:

Games Workshop’s growth in licensing income underscores the company’s successful expansion into new revenue streams, leveraging its intellectual property through strategic partnerships and licensing deals. However, the shares trade on a forward PE ratio of 22, and this looks expensive relative to single digit forecast growth in earnings per share.

On the slide: Berkeley Group (LSE:BKG) -5.8% on the week

Berkeley Group’s share price sank this week following the publication of their Final Results, which revealed several issues and trends that concerned investors.

One major factor contributing to the decline is the impact of higher interest rates. The increased borrowing costs have slowed down property transactions and reduced buyer enthusiasm, affecting the entire UK housing market. Berkeley mentioned that the lack of urgency among buyers is expected to persist until interest rates begin to decrease.

In response to these challenging conditions, Berkeley is making strategic adjustments. They announced the establishment of a Build to Rent platform, aiming to capitalise on the high demand for rental properties in London and the Southeast. However, this shift in strategy, while potentially beneficial in the long term, also introduces new risks and uncertainties.

REGENCY VIEW:

While Berkeley has a strong order book and has secured 80% of its sales for the next year, it still faces ongoing political and macroeconomic volatility. The value of net reservations has been consistent but at levels about a third lower than the previous year. And with the BoE keeping rates on hold, we expect housebuilders to continue to struggle for now.

Sector Snapshot

After a defensive few week’s, our UK Sector Snapshot has a more bullish look to it with Financials leading the pack and eight of the eleven sectors making gains.

However, defensive Utilities and Telecoms have continued to show strength – indicating the underlying caution that remains in the market.

UK Price Action

Yesterday’s price action saw the FTSE break and close above the descending triangle pattern that we highlighted in last week.

A weekly close above the triangle should reignite the FTSE’s long-term uptrend. However, a weekly close back below the triangle would signal a false breakout.