Tuesday’s Master Investor Market Report featuring HSBC, John Menzies, Aberdeen Asset Management and Just Eat

• Capital exodus from the UK – Investors have withdrawn an unprecedented $365 billion from the UK over the past 15 months. There are widespread concerns that the domestic political climate will turn sour in the aftermath of the General Election. During the month of March, outflows accelerated to $24 billion. The financial markets clearly anticipate that the Election will bring anything but strength to the Pound Sterling. The sell-off ahead of the 2005 and 2010 elections were much less pronounced, further indicating that trouble lies ahead.
• Master Investor attendees were ahead of the game – Shares of social media and professional network LinkedIn (NYSE:LNKD) got battered last week, down from $263 to $201 at time of writing (-24%). At our recent investor show, keynote speaker Jim Mellon warned attendees that LinkedIn looked outrageously overvalued. On the flipside, Mellon recommended Galapagos NV (NL:GLPG) as a top tip for the coming 12 months. The share price has risen from EUR 32 to EUR 37 (+15%) at time of writing. Sign up for our 2016 event now using this link.
• The FTSE 100 tumbled by 58.37 points to 6,927.58 points; the FTSE 250 declined by 16.2 points to 17,452.07; the FTSE All Share fell 25.89 points to 3,744.86 points; and the FTSE
  AIM All Share finished the day down by 1.34 points at 751.68 points.

HSBC (HSBA) successfully countered higher regulatory costs and ended the first quarter with pre-tax earnings up a healthy 4%. Pre-tax profits rose to $7.06 billion, up from $6.79 billion for the same period a year ago. The banking giant recently warned that it may quit the UK and move its headquarters to another jurisdiction. However, after a strong opening, HSBC shares fell back as investors concentrated on CEO Stuart Gulliver’s remarks regarding the bank levy’s negative impact on banks’ ability to pay a progressive dividend. HSBC shares slipped 20.4p to 625.9p.

John Menzies (MNZS) continued to gain following activist manoeuvring on the part of its biggest shareholder. Last week, Swiss-based Lakestreet Capital disclosed that it is trying to convince Menzies’ senior management to consider a break-up into two separate companies. Menzies’ print distribution business, which controls about half of the wholesale supply of all newspapers and magazines in the UK, does not seem like a natural fit for its aviation business, where it does everything from moving passengers around airports to handling baggage. Kabouter Management LLC, a Chicago-based asset manager that owns 9 percent of Menzies, is now publicly backing the idea of breaking up the company. Whereas the company is currently valued at £245 million, the two separate entities could be worth more than £400 million, argues Kabouter. The market seems increasingly confident that changes are afoot at Menzies, as the shares rose a further 5p to 405p.

Aberdeen Asset Management (ADN) shed almost 3% despite a 25% increase in profits during the first half of the fiscal year. Investors took note that earnings growth was primarily due to an acquisition, whereas fund outflows remained high and reached a total of £11.3 billion during the six months to March 31st. The firm said the outflows are linked to investors’ aversion to emerging markets, which could suffer disproportionately if or when the Federal Reserve decides to raise interest rates. Yet, with £567 million in net cash, ADN can afford significant share buy-backs and scout for small acquisitions, all of which could enhance earnings. Aberdeen shares ended the day down 12.5p at 450.6p.

Just Eat (JE.), the company that provides an app for take-away orders, increased its customer orders by 51% during the first quarter. The market reacted buoyantly to the news, with the share up 17.6p to 473.6p over the course of the day. As a company spokesman said, the single most popular item among its clientele was the doner kebap. However, whether or not investors believe this app and other initiatives are enough to sustain the current market cap of £2.55 billion remains to be seen.

Tomorrow’s news today

Sage Group (SGE) will be reporting interims and there will be full year results from Boohoo.com (BOO) Sainsbury’s (SBRY) and Summit (SUMM).

In terms of economic news, there will be Services PMI figures for the UK and the EU, as well as Crude Oil Inventories and MBA Mortgage Applications figures from the US.

Quote of the day

“The extravagance of any corporate office is directly proportional to management’s reluctance to reward shareholders.”
—Peter Lynch