UK Government reduces stake in NatWest, and Halfords beefs up motoring service capabilities

“Tech stocks are back in the doghouse after another leg up in bond yields and increased expectations for higher interest rates, affecting discount rates used for valuations and making tech names on high ratings less appealing,” says Russ Mould, Investment Director at AJ Bell.

“The Nasdaq took a tumble last night, falling 3% while the S&P 500 fell by 1.5%. The turmoil spread across Asian and European markets on Friday, with leading indices in Hong Kong and Japan both down by 1.4% while the FTSE 100 was down by 0.6%.

“The UK has lower exposure to tech stocks than many other markets around the world, but whatever happens in the US tends to affect investor sentiment globally.

“Movements within the FTSE 100 would suggest investors have taken shelter in defensive names and value stocks, with utilities and tobacco sectors in demand.

“After being a superstar for many years, the Nasdaq has been lagging this year, up 3.3% which is a fraction of the 9.3% gains from Japan’s Nikkei 225 and 7.2% from Germany’s DAX. However, it is still better than the FTSE 100’s 2.5% gain year to date.”

NatWest / Barclays

“It’s easy to forget that the Government still owns a big stake in NatWest given it has been 13 years since the bank was first bailed out during the global financial crisis.

“Even though a big chunk of shares is now heading back to NatWest, it could still be a long time before the bank is able to become a fully privatised business again. After the latest deal, the Government will still own nearly 60% of the company.

“At its peak in 2009, the Government owned 84.4% of NatWest, then better known as the Royal Bank of Scotland. It wasn’t until 2015 that some of the shares began to be sold off.

“In comparison, it took eight years for the Government’s entire 43% stake in Lloyds, acquired in 2009, to be returned to private hands.

“Sentiment towards the banking sector has been incredibly poor since the global financial crisis of 2007-2009, with investors showing little interest.

“Low interest rates have made it hard to make good money, balance sheets have needed repairing, dividends were absent for a long time and then payments were interrupted by the pandemic, and the sector has come under increasing regulatory pressure.

“The big question is whether we’re now at a turning point. Economic recovery is widely expected which could lead to higher interest rates and thus better earnings for banks, and the big players are in a much better financial shape.

“From an investment perspective, value stocks are in vogue and banks firmly fall under the value banner.

“Barclays certainly seems to think its shares are cheap, given how it now plans to buy back up to £700 million worth of its stock.”

Halfords

“Halfords is gearing up for the nation’s motorists to start putting their foot on the gas as the economy reopens.

“The acquisition of Universal Tyre and Autocentres may be a modest-sized deal but is nonetheless an important marker on the road to building a leading motoring services business.

“A current target to hit 550 centres, from 374 if you include those picked up in the Universal transaction, would still leave it short of Japanese-owned Kwik-Fit which has more than 600.

“Often more closely associated with its cycling outlets, Halfords’ portfolio of car repair sites and vans which can offer a ‘mobile’ service to customers at home or at work is increasingly important. This work is typically higher margin and is growing more rapidly.

“Now is a good time to be expanding in this area, with an opportunity to consolidate its position by snapping up smaller, weaker rivals to benefit from a likely increase in demand later this year.

“Halfords is also making plans to adapt as the car market moves towards electric vehicles, driven by regulation, announcing a significant investment in November 2020 in training up electric vehicle technicians.

“The aim being that by as early as next month it will have one of these specialists in every one of its garages.”

These articles are for information purposes only and are not a personal recommendation or advice.