|CATEGORY: SECTOR REVIEW SECTOR: SUPPORT SERVICES
Tue 10 Jul 2018
LONDON (SHARECAST) - (Sharecast News) - Tech stocks were among the main risers on Tuesday, while utilities and telecoms again were the main presence on the downside.
IT infrastructure products and services provider Softcat rose the most as a trading update revealed favourable market conditions that have led management to expect 2018 adjusted operating profit to be "materially ahead" of previous expectations.
Analysts at Credit Suisse were so impressed they upgraded the stock to 'outperform' in response, saying: "Importantly, the growth is broad based and is primarily driven by rising gross profit per customer. We see this as payback on the investments into sales and broadening the group's capabilities, giving the group greater scope to capture increased wallet share with customers."
Elsewhere the sector was boosted by a note from Barclays on the European tech sector, where analysts were "struggling justify the valuations attached to some of the higher-quality names, while value tech is looking increasingly tempting". There were 'overweight' ratings reiterated on the likes of Avast, Micro Focus and Just Eat.
Computacenter was lifted by all this positivity despite Barclays cutting its rating to 'underweight' from 'equalweight' on Tuesday on valuation grounds. Although analysts cut the stock on valuation, they lifted the price target a touch to 1,100p from 1,080 on the back of earnings per share upgrades and said the full year outlook read positively and talked to a better-than-expected performance and another year of anticipated growth.
There was also a lift for Alpha Financial Markets from Panmure Gordon, which said the provider of operations, technology and strategy consultancy to the asset management industry was "beating the big beasts of global consulting at their own game" as well as growing free cash flow well ahead of sales. "AFM's unrelenting focus, its remarkable client list (a roll call of the great-and-good of the asset management industry) and its unique model combine to make us enthusiastic buyers up to 421p."
More generally, defensive stocks were on the slide again, with the utilities and telecom sectors in particular seeing their stocks decline as investors rotate into cyclicals on a global basis, amid a mini rally ahead of second-quarter earnings season.
"Such behaviour reflects a market mood that is turning more aggressive towards risk-taking, as investors shift back to fundamentals and put trade war fears behind them," said Hussein Sayed, chief market strategist at FXTM.
S&P 500 company earnings are expected to grow 20% in the second quarter, according to FactSet. "This should encourage more appetite for risk in the coming days, unless big negative news related to trade disrupts the optimistic mood," added Sayed, noting that the VIX volatility index was also reflected this positive sentiment, by declining 5% on Monday to trade below 13 for the first time since 22 June.
However, Kathleen Turner at Capital Index pointed to a growing trend towards defensive strategies. "Although last week's trade tariffs imposed on China by the US hasn't triggered a major stock market sell off as some had feared, jitters are starting to creep in and more analysts are supportive of defensive strategies as we move into the peak of the summer holiday season," she said. "Stocks could struggle to break higher in the near term, even though we don't see any immediate dangers that could trigger a major sell off."
Top performing sectors so far today
Oil Equipment, Services & Distribution +2.40%
Software & Computer Services +1.66%
Electronic & Electrical Equipment +1.63%
General Industrials +1.61%
Industrial Engineering +1.57%
Bottom performing sectors so far today
Gas, Water & Multiutilities -2.15%
Fixed Line Telecommunications -2.04%
Financial Services -1.14%