The Times - UK (2022-05-02)

the times | Monday May 2 2022 37

Business

sign of surrendering the throne

that a more pronounced slowdown in

Chinese economic growth could hit

demand in what has become a core

market for Apple.

“They did say they don’t have a

demand problem, but at some point if

[people] can’t get out ... it could also

slow the consumer there,” Siegel said.

“The stock’s not trading down that

much, so the market is handling it

pretty well and thinking it’s a short-

term thing but nobody knows how long

this is going to last.”

Market data from the US investment

bank Morgan Stanley is more optimis-

tic. It estimates that the iPhone in-

stalled base share reached a record high

of 23.3 per cent at the end of March,

with year-on year market share gains

the strongest since March 2019 thanks

to strengthening retention rates and

continued switching from Huawei

phone users.

Ives believes Apple has been over-

sold, arguing that supply issues are

largely out of the group’s control and

that if demand for its products and ser-

vices remains buoyant, the shares

should re-rate. “We believe Apple can

pass on price increases to consumers

which makes them more Teflon-like in

this rising inflationary environment,”

he said.

Indeed, Apple’s shares have held

water better than peers during the

recent sell-off. The tech group still has

an enterprise value equivalent to 6.9

times forecast sales and 20.6 times

expected earnings this year. Investors

are split on whether that fully takes into

account risks further down the road.

“The big question mark for me is the

valuation,” said Guinness. “Unlike

Google, and unlike Facebook and un-

like Amazon, Apple is at a very high

multiple relative to its history.”

Another investor said, however, that

while the shares do trade at a premium,

there is no reason why they shouldn’t.

“If you look at it through the lens of a

mass affluent consumer brand business

with an enormous installed base ... it’s a

pretty exceptional asset,” they said.

Apple still trades at high stakes valua-

tion multiples and ones that could re-

sult in Apple receiving harsher treat-

ment if Chinese supply chain issues or

flagging consumer spending trip up

earnings growth. But there is no sign of

rivals taking its crown just yet.

Second quarter sales ($ millions)

Apr 1, 1976

The Apple Computer

company founded

Dec 12, 1980

Goes public,

selling 4.6m

shares at $22

per share,

generating

over $100m

Sept 16, 1985

Jobs and

Wozniak leave

Apple after

power struggle

with CEO John

Sculley

Sept 16, 1997

Steve Jobs

returns to Apple

Aug 15, 1998

First iMac goes

on sale

May 19, 2001

Opens retail

stores, releases

first iPod

Jun 29, 2007

Releases first

iPhone, main

picture

May 26, 2010

Apple’s stock

market value

overtakes

Microsoft

($229bn)

Aug 24, 2011 Tim

Cook, below, named

chief executive

Sept 9, 2014

Announces the first

Apple Watch, its

first new product

since Jobs’s death

1970s 1980s 1990s 2000s

Apple S&P 500

140

120

100

80

60

40

20

0

-20

-40

Apr Jul Oct Jan Apr Jul Oct Jan Apr

2020 2021 2022

%

2000s

Jan 3, 2022

Becomes first

ever $3trn

company

Aug 20, 2020

Stock reaches

a valuation of

$2trn

Nov 1, 2019

Unveils

Apple TV

Aug 2, 2018

Becomes

highest-value

company, at

more than a

trillion dollars

Apple versus the S&P 500

Total returns since the 2020 market crash

Net sales ($ millions)

2022 2021

2022 2021

Americas 40,882 34,306

Europe 23,287 22,264

Greater China 18,343 17,728

Japan 7,724 7,742

Rest of Asia 7,042 7,544

Pacific

iPhone 50,570 47,938

Mac 10,435 9,102

iPad 7,646 7,807

Services 19,821 16,901

Wearables, 8,806 7,836

home, accessories

May

Ope

stor

first

0s

Oct 5, 2011 Steve

Jobs dies from a

rare form of

pancreatic

cancer

contributes a bigger chunk of gross

profits, said Jon Guinness, a fund man-

ager at the asset manager Fidelity

International, which invests in Apple.

“It’s just doing this relentless march for-

ward,” he added.

But analysts still forecast a slowdown

in overall revenue this year to 8 per cent,

from the 33 per cent growth recorded

last year. The extent to which the pan-

demic and the release of the iPhone 12

pulled forward demand, adds a layer of

uncertainty to where sales will land this

year. “Historically when you have a big

jump from the generation cycle then

the following year there’s a slowdown,”

said Chaim Siegel, head of US equity

research at the stock market research

specialist Elazar Advisors.

There is also the question of whether

Apple can retain its pricing power when

soaring inflation is squeezing consumer

wallets. The uniqueness of Apple’s

products means it shouldn’t lose those

customers altogether, argued one in-

vestor. “The Apple purchase is not a

fungible purchase and it’s something

where you’ll wait and they’ll close that

business later,” the investor said.

But there are other hurdles for Apple

to surmount if it is to meet sales expec-

tations, chiefly supply chain disruption

and shortages of the semiconductor

chips used to make hardware products.

Almost half of Apple’s top suppliers are

located in or around Shanghai, accord-

ing to its most recently published list, a

city under lockdown as part of the Chi-

nese government’s zero Covid policy.

British companies issued a record num-

ber of profit warnings because of rising

costs at the start of the year as inflation

began to bite.

The number of warnings, which are

issued by companies to warn stock

markets that their profits will decline

significantly, rose by 44 per cent in the

first three months of the year compared

with the same period in 2021.

A record 43 per cent of warnings

issued by UK-listed companies in the

first quarter of the year were due to

rising costs eating into profit margins,

according to research published by

EY-Parthenon.

This figure rose from 27 per cent at

the end of last year and was well above

Rising costs trigger record

number of profit warnings

the average of 10 per cent for the past

decade, when inflation remained low.

Companies issued 72 warnings over

the three months, with customer-fac-

ing sectors such as hospitality and retail

suffering the greatest setbacks.

Just over one in ten, or 11 per cent, of

companies said that the war in Ukraine

was causing a decline in profits. Most of

those said that sanctions on Russia and

their withdrawal from Russian markets

had damaged their business.

Alan Hudson, a partner at EY-Par-

thenon, said: “2022 was always going to

be a difficult year for companies to

navigate.”

The war in Ukraine has added pres-

sure to supply chains and demand,

while the Bank of England, which is

battling inflationary pressure, will take

a decision on rates on Thursday.

Arthi Nachiappan

Economics Correspondent

“Going into earnings there’s always a

fear that the China issues will taint the

story,” Ives said. “Supply continues to

be the issue for Apple, not demand.”

Luca Maestri, Apple’s finance chief,

told analysts that the tech group ex-

pected to take a hit of between $4 bil-

lion and $8 billion during the present

quarter due to supply shortages, partic-

ularly silicon, and factory shutdowns in

China, a “substantially larger” impact

than the group experienced during the

March quarter. There is also the risk

tomorrow

Can Meta fend off threats

from rivals and regulators?

Builders unhappy at ‘aggressive’ Gove

The boss of one of the country’s biggest

privately owned housebuilders has said

that Michael Gove’s “aggressive” tac-

tics helped to squeeze money out of the

industry more quickly for replacement

cladding.

Andy Hill, founder and chief execu-

tive of Hill Group, said that the ap-

proach from Gove, the housing secre-

tary, in the aftermath of the Grenfell

Tower fire, had not gone down well

with many builders.

Under pressure from the govern-

ment 35 of the biggest developers, in-

cluding Hill Group, have committed

£5 billion to fix fire safety issues at their

own buildings as well as some others.

Gove effectively strong-armed build-

ers into signing up to his agreements,

threatening those who did not with ex-

pulsion from the market.

“None of us have really liked his tac-

tics,” Hill, 63 said. “But I suppose we’ve

got a result quicker than what we might

have done had there not been such an

aggressive approach.”

He added: “We were in support of

signing up to [the government’s pledge].

Your reputation is everything.”

Hill Group published its financial ac-

counts for 2021 which show that it built

2,318 homes last year, predominantly in

and around London and Cambridge,

which generated £753 million. That was

15 per cent more than in 2020 and a

record for the business. Net profits

jumped 47 per cent to £65.1 million.

Dividends of £5.18 million were paid

to shareholders, most of whom are the

Hill family, which owns almost 75 per

cent. Andy Hill started the business in

1999 after being made redundant as a

director at Willmott Dixon. He set up

on his own, working out of a lock-up in

Dagenham, Essex. His first job was the

£1 million refurbishment of a building

in east London owned by the Guinness

Trust. Hill Group is now on 65 sites,

mainly in the southeast of England.

The early weeks of the pandemic

“were pretty dire”, Hill said, although

the market “bounced back so quickly”

as lockdowns led to changes in how and

where people live.

Hill Group’s profits last year would

have been higher had the company not

been faced with soaring costs. Materials

such as timber and concrete have shot

up in price, as has labour, with Hill not-

ing that some of the workers who re-

turned to mainland Europe during the

pandemic have not returned.

Tom Howard

£65.1m

Hill Group’s net profits were a record

last year and up by 47 per cent on 2020