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US election - one year on

9 November 2017

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

On the face of it, Donald Trump’s election has done wonders for the US stock market.

The S&P 500, an index which tracks the share prices of the 500 largest stocks listed in the US, is up over 20%* since this time last year. By comparison, the UK's FTSE 100 is up by a little under 10%.

Given those performances, we look at how have our three shares for a Trump Presidency have fared so far. Although, please remember, past performance is not a guide to the future. Yields are variable and are not a reliable indicator of future income. All investments fall as well as rise in value, so you could get back less than you invest.

Ashtead - up 57%* since election day

The US accounts for 87% of revenues at construction equipment lessor Ashtead.

As the second largest player in the US the group has, as we had hoped, been a significant beneficiary of the robust US construction market over the past year.

Dollar revenues rose 9% in the financial year to April, and 15% in the most recent quarter. The weak pound has made those performances even more significant for UK investors.

The recent impact of Hurricane’s Harvey and Irma is expected to increase demand for Ashtead’s equipment as it supports clean-up efforts and reconstruction. That suggests fleet utilisation numbers could pick up from an already improved base.

The company has seized the improved operating environment to up investment in the business, including the acquisition Canadian rental business CRS. This investment has increased net debt in absolute terms, although it remains steady as a percentage of earnings.

Investors enjoyed a 22% increase in the dividend at the last full year, with management continuing to pursue a progressive dividend policy. Analysts are currently forecasting a prospective yield of 1.7% for the current financial year.

We should sound a note of caution though. Construction is a highly cyclical business and Ashtead has a track record of getting over-confident during the good times.

Just before the financial crisis Ashtead splashed $1bn on acquiring another US rental firm. Debt soared and the business had a near death experience when its highly cyclical revenue dried up. Keep a firm eye on that debt figure.

Ashtead share price, charts and research

Intercontinental Hotels - up 28%* since election day

Hotels are one of the sectors that has made a particular contribution to the construction boom supporting Ashtead, and IHG has been paying its part.

US revenue per available room (RevPAR) has grown by 0.6% so far this year. That’s behind both the group and Americas as a whole. However, IHG has been growing room numbers over the period.

IHG recently launched the new avid hotels brand, specifically targeting the mid-sized hotels in the US. It’s a sector management feel is underserved and initial results have been strongly positive. Having received over 150 expressions of interest from potential franchisees, and more than 50 applications, in the first four weeks of sales, demand is outstripping expectations.

With the Americas accounting for 87% of revenues in the first half, and the US accounting for the lion’s share of that, the outlook for the US matters for IHG.

That said investors shouldn't lose sight of the increasing importance of China to the group, and here Donald Trump’s policies could have a negative effect.

Trump entered the White House with an agenda that would have had negative consequences for global trade. Given China's position as a lynchpin in most global supply chains, that would not bode well for what is meant to be the company's growth engine.

InterContinental Hotels Group share price, charts and research

BAE systems - up 4%* since election day

As the Trump administration has discovered, defence contracts don’t move quickly.

Approval for a $100m F-35 stealth fighter jet, on which BAE is one of the lead partners, takes a while. Delivery takes even longer. That, along with a tough defence spending environment in the UK, might explain the slightly disappointing share price performance over the last year despite increased geopolitical tensions.

However, BAE remains upbeat about conditions in the US defence market and believes it’s well positioned for long-term growth. It's got some justification for that belief, with the House of Representatives Budget Committee estimating an annual defence spend of around $741bn by 2027.

BAE Systems is by far the biggest UK listed player in the market, and US sales of $6.8bn in 2016 accounted for over 1% of all US defence spending. BAE isn't just exposed to the ‘tanks, planes and boats’ hardware that dominates current military budgets, either. Its Cyber & Security business is gaining traction, although competition is fierce.

Unfortunately, the world seems to be becoming less rather than more stable at the moment, and that suggests defence spending is only likely to head in one direction. Against that background the prospects for future orders look good at BAE. Add an order book that at £42.3bn is roughly the size of Tunisia’s annual GDP, and the prospects for the current 3.9% prospective dividend yield look good.

BAE Systems share price, charts and research

*Source: Google Finance 9/11/2016-8/11/2017

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Investment notes
No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.
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