Cute, innit?
That’s the perfect ‘V’-shaped recovery envisaged by the UK strategy team at Cazenove, comprised of Darren Winder and Robert Griffiths. Trouble is, the London equity market is refusing to acknowledge such a rosy scenario - something that has rather meddled with the Cazenove maths:
Equity markets have lost some of their earlier upward momentum in recent weeks. At around 4,100 at the time of writing, the FTSE 100 is trading well below the bottom of the potential trading range identified by our market arithmetic, of between 4,500 and 5,500. Within the market, our arithmetic continues to identify considerable upside to both cyclicals and defensives. Within defensives, our arithmetic identifies more than 20% upside in telecoms, tobacco and utilities. Within cyclicals, our arithmetic identifies more than 20% upside in general retailers, housebuilders and oil producers. At current levels, we estimate that UK equities are trading on less than 10x trend earnings…
Clearly, Messrs Winder and Griffiths are buyers at these levels.
Yet their optimism is at least partially based on the (delusional?) bottom-up consensus forecasts of their sector-specialist colleagues. Consider this:
Beyond 2009, profits are forecast to increase by around 20% in 2010, rising by a further 25% in 2011 and a further 10-15% in 2012. Over the next three years, profits are therefore forecast to increase by an average of around 20% a year, with the level of profits forecast to increase from a cyclical low of around £100bn to around £170bn in 2012.
That’s after an expected 30 per cent contraction in profits forecast for 2009, by the way. Those numbers are also predicated on a four-fold increase in profitability amongst the financials, expected to jump from £10bn in 2009 to £40bn in 2012. The oil and gas sector is asked to produce £35bn by 2012, up from £20bn this year, while mining is expected to double to £20bn within three years.
Maybe someone should let the relevant managements know.
Related links:
Some bullish company for Tim Bond - Long Room
