The Morning Call - Nestle sees weakest sales growth in two decades

Highlights of the Day

Asian Markets

Strong stock gains continued in Asia, though volumes in much of the region were capped by the coming Lunar New Year holiday.

U.S. Markets

Wall Street surged as investors shrugged off stronger-than-expected inflation data and snapped up shares of Facebook, Amazon.com and Apple.

Today's News

South African President Jacob Zuma announced that he is stepping down, a day after the ruling party asked him to resign following a string of damaging corruption scandals. “The ANC should never be divided in my name. I have therefore come to the decision to resign as the president of the republic with immediate effect,” Zuma said in a televised address to the nation.

AstraZeneca and Merck & Co Inc announced the US Food & Drug Administration has granted Orphan Drug Designation for selumetinib, a MEK 1/2 inhibitor, for the treatment of neurofibromatosis type 1.

Lancashire Holdings said that it swung to a full-year loss as it took a hit from natural catastrophes. In the year to the end of December 2017, the company made a pre-tax loss of $72.9m compared to a profit of £150.4m the year before. Gross premiums written dropped to $591.6m from $633.9m in 2016, with net premiums written of $398m versus $458.7m.

Walmart has announced plans to go head-to-head with Amazon, building its own internal cloud network to store almost limitless client information and manage sales. Walmart was preparing to use its six giant server farms to take on e-commerce giant Amazon.com by storm. The farms, which cost million dollars and took five years to build, were key in helping Walmart to manage inventory and serving customised offers to their clients.

RELX Group, the global professional information and analytics company, increased its adjusted operating profit by 6% to £2,284m in 2017. Revenue grew by 4% to £7,355m, driven by growth in electronic and face-to-face revenues (89% of the total), and the further development of its analytics and decision tools, partially offset by continued print revenue declines.

Nestle expects sales to rise between 2% and 4% this year after posting meagre growth of 2.4% in 2017 – the weakest rise in more than two decades. The weak performance and cautious outlook are likely to encourage activist investor Third Point, which has been pushing Nestle to speed up its transformation into a better-performing health food company. Annual net profit slid 16% to 7.2bn Swiss francs (£5.5bn) – well short of the 9.6bn expected.

GKN has written to shareholders describing a hostile takeover bid from turnaround specialist Melrose as “entirely opportunistic”, while reiterating that the terms of the £7.4bn offer “fundamentally undervalue” the business. “As you know, on 1st February 2018 Melrose made an offer for GKN which, on the basis of its latest share price, values your company at only 397p per share and leaves you with 57% of an enlarged Melrose,” GKN said in the letter. “It is your board’s belief that this offer is entirely opportunistic and that the terms fundamentally undervalue GKN.”

Convatec Group’s revenues rose to $1,764.6m in the year to the end of December, up 4.5% from $1,688.3m a year ago. Operating profit for the year was $247.8m, up 60.9% year on year while adjusted operating profit was $456.8m, down 3.3% year on year due to increased investment in growth and inclusion of Plc costs. The company said it expects 2018 organic revenue growth of 2.5% to 3.0% and a decline in EBIT margin due to the decision to increase targeted investment, despite the temporary shortfall in revenue growth.

Gold rose further, supported by a weaker dollar and as investors bought the yellow metal as a hedge against inflation.

Oil Prices were rallying again, on the heels of the biggest one-day gain in more than two months, driven by a mild U.S. crude-inventory rise.

Companies Reporting this week

Day	Companies
Wednesday:	Shire
Thursday:	Relx * Nestle
Friday:	Segro

Early Market Movements

Market	Index	Change	% Change
UK 100	7,244.9	+30.9	+0.4%
UK 250	19,537.5	+89.1	+0.5%
GER 30	12,426.5	+87.4	+0.7%
FRA 40	5,212.2	+46.9	+0.9%
U.S. 30	24,893.49	+253.04	+1.0%
U.S. 500	2,698.6	+35.7	+1.3%
OIL (BRENT)	64.93	+0.57	+0.9%
GOLD	1,354.45	+3.72	+0.3%

UK Risers & Fallers (8:15am)

Company	Price	Change	% Change
Antofagasta	928.2	+12.2	+1.3%
Scottish Mortgage Investment Trust	449.2	+5.8	+1.3%
Vedanta	785.1	+31.3	+4.2%
Standard Life Aberdeen	367.2	-22.1	-5.7%
Astrazeneca	4726	-104	-2.2%
Lancashire Holdings	615	-39	-6.0%

Latest Broker Views

Company	Broker	Recommendation	Price	Target
Smith & Nephew	Goldman Sachs	Neutral	1258.5	1310
Diageo	JPMorgan	Overweight	2473.5	2800
Shire	Deutsche Bank	Buy	3135.5	4500
Royal Bank of Scotland	JPMorgan	Neutral	274.9	290

Forthcoming Economic Data

Time/Date	Previous	Forecast	Outcome
1.30pm: U.S. PPI m/m	-0.1%	0.4%	–
1.30pm: U.S. Core PPI m/m	-0.1%	0.2%	–
1.30pm: U.S. Empire State Manufacturing Index	17.7	17.7	–
2.15pm: U.S. Capacity Utilization Rate	77.9%	78.0%	–