Rolls-Royce confirms big fundraise and Halfords soars

“Investors were hungry for a broad mixture of stocks on the UK market on Thursday, with banking, insurance and mining among the sectors in demand. Bottling company Coca Cola HBC topped the FTSE 100 risers thanks to a bullish broker note,” says Russ Mould, Investment Director at AJ Bell.

“In mainland Europe, fashion retailer H&M beat profit expectations for its third quarter period. Chief executive Helena Helmersson said: ‘The worst is behind us.’ The company’s shares jumped 6.4%.

“Germany’s DAX index advanced 0.3% while France’s CAC 40 index moved 1.1% higher.

“Asian stocks were mixed. China’s Shanghai SE Composite index slipped 0.2% with notable selling among real estate and mining stocks. Trading was suspended on the Tokyo Stock Exchange after a technical problem. Hong Kong’s Hang Seng index advanced 0.8% with tech and healthcare stocks in demand.

“Pre-market indicative prices suggest a good day for US stocks with the Dow Jones showing a 0.9% likely rise when markets open, and a 0.7% gain for the S&P 500. Investors continue to be optimistic about new US stimulus, however markets are likely to become more volatile as we approach the US Presidential election.

“Brent Crude oil traded 0.1% higher at $42.36 per barrel while the gold price hovered around $1,900 per ounce.”

Rolls-Royce

“Once seen as a shining light for British business and for engineering worldwide, Rolls-Royce has had to stomach major problems with the Trent 1000 engines in recent years and Covid-19 just added to the pressure.

“The market has been fearful about the company’s prospects given significant disruption to the aviation industry, meaning demand would be hit for both engines and maintenance.

“After months of speculation, Rolls-Royce has finally confirmed plans to raise a large slug of money via issuing new shares and bonds.

“As of 30 September, Rolls-Royce’s shares were trading at a 17-year low of 130p, reflecting market concerns about the company’s prospects and its financial position.

“The equity component of the new fundraise equates to a theoretical ex-rights price of 54.6p. It was only two years ago that Rolls-Royce was trading above £10, illustrating a massive fall from grace.

“Investors taking part in the share and bond issue need to have considerable faith in the aviation industry getting back on its feet. Handing over money now to back Rolls-Royce would also require considerable patience as this is unlikely to be a rapid recovery story.

“There are two factors to consider – the first is how long it will take for demand to return for plane travel. Airlines need to see sales improve to restrengthen their balance sheets. And that leads to the second factor – in general they can’t think about ordering new planes, and therefore engines, until they are in a much stronger position financially.

“It could be long waiting game for Rolls-Royce, hence the need to boost its liquidity now to see it through potentially three or four years of further depressed activity.”

Halfords

“It turns out that against Halfords’ expectations we are not a nation of fair weather cyclists after all. Having recently guided for the sales surge in bikes to wane as we head towards winter the company’s decision to raise guidance now shows it is continuing to see very strong demand.

“The increase in forecast profit for the first half is material and will provide encouragement that the company is really getting in gear after seemingly being stuck in an endless turnaround situation for what feels like a decade or more.

“Also providing some encouragement is the performance on the motor side.

“While the company expresses caution on the second half, the decision to recruit hundreds of skilled technicians is telling.

“The boost to bike sales in the pandemic came about as people sought ways to get exercise in lockdown, and after a quasi-return to normality, to pedal their way to work rather than brave public transport.

“Increased aversion to taking the bus, tube or train is also helping the group’s auto centres thanks to those who are able to retreat to the perceived safety of their own cars.

“We have been here before with Halfords. The London 2012 Olympics provided a short-term boost to demand after the strong showing of the likes of Laura Trott and Chris Hoy in the velodrome.

“However, the retailer never really built on this success thanks to issues like poor customer service. This time round it needs to make sure it gets this part of the equation right.

“Also, given once you’ve purchased a bicycle you’re unlikely to buy another one for some time – the company needs to ensure it picks up as much of the servicing and maintenance spend as it can to enjoy a lasting benefit from the latest British bike boom.”

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