Yesterday’s excitement surrounding the prospect of an eleventh hour Brexit deal finally materialising has carried over into today, with the volatility in the pound pushing it to three-year highs.
If a Brexit deal is approved by the EU, Prime Minister Boris Johnson’s next daunting task will be passing the deal in Parliament. It seems unlikely that the deal will differ substantially from the one presented to Parliament by his predecessor, Teresa May.
That proposal failed in part due to the intransigence of the Northern Irish Democratic Unionist Party (DUP), which has consistently vetoed any deal that would establish a customs border between the islands of Great Britain and Ireland, essentially separating Northern Ireland from the rest of the EU.
It appeared that the impasse was insurmountable until the Prime Minister met with his Irish counterpart, Leo Varadkar, last week. Since then, it appears that he has softened his stance on Northern Ireland, and now appears to be willing to make concessions. Notably, the DUP has also softened its rhetoric on the issue, appearing to not rule out the idea of a customs border in the Irish Sea.
The DUP is staunchly pro-EU, but if it appears that all other parties are willing to budge on the issue, they may consider using their considerable negotiating leverage to win a massive stimulus package for Northern Ireland. Their constituents care deeply about remaining in the United Kingdom, but at a certain point the economic concerns could overcome questions of sovereignty.
ASOS
Among the biggest winners today are shareholders in online retailer ASOS (LSE: ASC). The stock is up more than 23% despite reporting a significant decrease in pre-tax profits. Full-year pre-tax profits fell 68% to £33.1m. The company has issued several profit warnings over the last year, but managed to avoid doing so in this trading update, which seems to be the source of investor elation today.
However, as reported by my colleague Paul Summers, the valuation for ASOS is still extremely high, with a forward price-to-earnings ratio of 44 even before the share price appreciation. This coupled with falling profits, makes it a questionable investment in my eyes.
Woodford Patient Capital
Yesterday was a bad day for Neil Woodford. The appointed corporate director for Woodford’s Equity Income Fund made the decision to not re-open the fund for trading and to instead begin a liquidation of its assets.
In response, shares of Woodford Patient Capital Trust (LSE: WPCT), Woodford’s other fund, fell by more than 9% on fears that a similar fate might befall it.
Today, it seems like those fears were well-founded. Shares of Patient Capital are down more than 8% today on the news that Woodford Investment Management has resigned as the fund’s manager, intensifying concerns about its future.
