Daily market update: tariffs, ground rent reform, Evoke, Dr Martens, Sage

The FTSE 100 moved higher after gains in the US last night and across much of Asia.

The exception to the positivity in Asian markets was South Korea after the Trump administration announced it was raising tariffs on imports from the country to 25% after accusing Seoul of not living up to a deal agreed last year.

The potential threat of 100% tariffs on Canada if it strikes a trade deal with China also lingers in the air, after the possibility of import taxes on European goods was floated in the spat over Greenland.  

It appears a period of relative stability over US trade policy is threatening to come to an end which could have consequences for global markets.

Gold prices remain elevated, even if they have eased a bit below their recent record highs, as investors await the Federal Reserve’s latest meeting and earnings reports from most of the big tech contingent.

Tesla saw yet another fall in sales in Europe in December, with its market share now a little more than 2%, suggesting founder Elon Musk’s controversial political interventions are continuing to affect the brand.

Ground rent reform

Radical changes to the ground rent system create uncertainty for certain parts of the investment market. While leaseholders will be jumping for joy at the £250 annual cap, it begs the question as to what pension funds invested in this space will do. Ground rents have historically been considered a solid investment, providing long-term and predictable income.

Reform of the ground rent system has been on the cards for some time, and valuations for related investments have been hit. Pension funds and life insurance companies may well have already started reassessing such holdings, and today’s news will exacerbate that thought process.

M&G is exposed to £722 million of ground rent assets and says the changes could reduce its solvency II ratio by one percentage point. Assuming the proposals go ahead, M&G will have to write down the value of some of its assets and suffer a hit to profits.

Shares in UK-listed Ground Rents Income Fund have lost two-thirds of their value over the past five years, the last three years of which it has been winding down its business. Its shares have fallen a further 8% today on the news.

Evoke

There’s one bet the gambling sector wouldn’t take and it’s a prediction that taxes will continue to go up for its industry.

Evoke is banging the drum, complaining about tax changes in the Budget and how they will be a detriment to consumers and the economy. The group is already heavily indebted and losing even more of its takings to the taxman creates a problem.

The writing has been on the wall for some time – Evoke is facing a break-up situation and the big question is which parts of the business will be sold.

William Hill was once the big prize for the UK gambling sector, but now it is a thorn in Evoke’s side. It is expensive and cumbersome to have a big physical store estate yet finding a buyer for William Hill won’t be straightforward given the tax pressures. Evoke may struggle to find someone to pay anything close to fair value, suggesting any asset sale could involve other parts of the group.

The Italian operations might be easier to sell, providing cash to help ease debt pressures, but that might only be a sticking plaster.

The lack of forward guidance has gone down poorly with the market, suggesting the company is staring into the fog, uncertain about where it will go next.

Dr Martens

For much of Dr Martens’ time as a public company it has felt like the company had its shoelaces tied together and third-quarter numbers look like another trip up.

The strategy of prioritising full-price sales rather than heavy discounting – which resulted in a drop in revenue for the period – could ultimately be a case of one step back, two steps forward.

Protecting the integrity of the brand rather than flogging its footwear on the cheap is a sensible long-term approach.

However, Dr Martens has little credit in the bank with investors who, even in the context of the company’s strategy of putting price above volume, may be alarmed by the scale of the drop in European sales. The consumer backdrop may be tough but that alone is not enough to earn Dr Martens a free pass.

Asian and US sales are more encouraging and that offers something to build on in the remainder of the financial year.

If Dr Martens can genuinely deliver the promised ‘significant’ profit growth at the full-year stage then it may start to get some more credit from the market. 

Sage

There has been latent concern about the extent to which AI might disrupt businesses like accountancy software specialist Sage.

Elements of Sage’s offering do feel like the sort of repetitive and functional tasks which could be done by a machine, without a middleman.

However, accountancy’s importance to the day-to-day running of a business, the sensitivity of the data and the risks associated with any errors are potential obstacles to widespread AI adoption.

In this context, the company’s latest update is reassuring with no sign that artificial intelligence is eating Sage’s lunch.

The level of organic revenue growth chalked up in the US is impressive for a business often perceived as being at the sleepier end of the tech space.

Management is doing its best to convince investors that AI can be an opportunity rather than a threat, driving efficiencies in the business which can help improve profitability and increasingly offering AI agents to help service clients’ needs.

This roll-out hasn’t been without its setbacks, with Sage’s Copilot AI assistant having to be suspended in early 2025 over data leaks.