🏛️ Bailey Buoyant on UK Economy

The BoE raised rates and claimed the UK would avoid a recession, Playtech announced record results, Lloyds of London slumped to a loss and Sunak hit out at “completely unacceptable” power trading methods

March 24, 2023

Good morning. In today’s update - The BoE raised rates and claimed the UK would avoid a recession, Playtech announced record results, Lloyds of London slumped to a loss and Sunak hit out at “completely unacceptable” power trading methods

Markets

Both of the UK’s top flight indices dropped lower today as markets reacted to BoE comments, after the widely-expected increase in interest rates. Losses were led by banks, with investors still seemingly nervous about the state of the financial system despite efforts by Andrew Bailey to comfort markets today (see below). The FTSE 100 and FTSE 250 dropped -0.9% and -0.2% respectively.

Top Stories

🏛️ BoE Raises Rates

Andrew Bailey & Co looked past recent turmoil in the banking sector to push ahead with rate rises on Thursday, with committee members voting 7-2 in favour of increasing the base rate by 25 basis points (now sitting at 4.25%). Markets had broadly expected the hike, even more so after yesterday’s hot inflation data. On the state of UK banks – the BoE claimed the financial system was “resilient”, with “robust capital and strong liquidity positions”. The UK’s central bank also noted it now expected the country to avoid a technical recession (i.e. two quarters of negative growth), with GDP now projected to rise in the second quarter. (Official)

⚖️ Playtech Announced Record Results Despite UK Regulatory Headwinds

The London-listed gambling services group saw it shares drop today, despite delivering record revenue and profit, ahead of expectations. Overall revenue jumped 33% to €1.6bn, with EBITDA up 28% to €406m. The one dark spot for Playtech was in its key UK market. Revenue dropped due to Playtech’s customers (who are bookmakers themselves) pulling back in response to expected regulatory action from the government, who are in the process of a review of the industry. CEO Mor Weizer also played down the prospect of backing any new takeover contenders. (Official)

📉 Investment Losses Hit Lloyds of London P&L

The insurer slumped to a £769m loss for 2022 (vs £2.6bn profit in 2021) as it dealt with a host of claims ranging from natural disasters to the Ukraine war. Lloyds set aside £1.4bn (which could increase) for Ukraine war losses, of which a large portion relates to stranded planes. Despite the headline result, Lloyds actually made an underwriting profit on its insurance policies of £2.6bn. Overshadowing this were large losses its investment portfolio (-£3.1bn), as interest rate hikes caused widespread declines in bond prices (around 65% of the investment portfolio is allocated to corporate and government bonds). (Official)

👎 Sunak Criticises Unethical Power Trading Tactics 

PM Rishi Sunak has hit out at tactics used by power traders to legally manipulate the power grid in order to maximise revenues. The move essentially involves turning off power stations ahead of peak demand for electricity, then selling the excess power back into the market at an inflated price later on. A Bloomberg report found that the technique had racked up £525m in excess revenue for energy firms over the last few years, the majority in 2021 and 2022 when many struggled with a surge in energy prices.

What Else Happened?

Economics / Politics / General

Junior doctors announced a 4-day walkout in April as pay talks with the Government broke down; Members of the British Medical Association are asking for a 35% rise

Deals

Birmingham-based supplier of field service management software, Joblogic, secured £60m in growth funding to support international expansion and product innovation

London-based IP platform RightHub raised $15m in seed funding to scale up its team across multiple geographies

British Crypto exchange Ziglu is reportedly on the verge of a fire sale after failing to raise capital

Company News / Trading Updates

DIY retailer Wickes mimicked Kingfisher’s results from the day before, posting a dip in profits amid dampened home renovation work, despite strong demand for energy saving products

Troubled payday lender Amigo has halted new lending and will now be wound down, after failing to raise new funds to pay for fines relating to poor lending practices

UK chip maker Arm is looking to raise prices ahead of its planned IPO, notifying clients of a “significant shift” in its business model

Just 10 days after being rescued by HSBC, Silicon Valley Bank’s UK arm has reportedly seen a resurgence of deposits

Bulmers owner C&C delivered an upbeat trading statement on Thursday, with revenues up 18% to €1.7bn despite a “challenging trading backdrop” – shares rose 3.6%. (Official)

Car dealer Inchcape saw its shares drop 12.6% as management warned of a “changeable economic environment”, despite reporting a jump profits and raising the dividend. (Official)

Apple is reportedly looking to shake up the Premier League streaming market by bidding for a group of rights, competing with BT Sport and Amazon

🌎 Global Snapshot

TikTok CEO Shou Zi Chew was torn apart at a congressional hearing on Thursday as lawmakers grilled the Chinese app over protections for young users, mental health, and ties to the Chinese Communist Party

Consultant Accenture announced it would cut 19,000 staff (2.5% of the workforce) as firms pull back on IT professional services fees

Crypto exchange Coinbase was warned by the SEC that it had identified potential violations of US securities law, shares drop 14%

An AI chatbot startup founded by ex-Google employees has raised $150m at a $1bn valuation, led by Andreessen Horowitz. Character.AI is reportedly pre-revenue and has only 22 employees

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