- FTSE 100 expected to remain relatively subdued.
- February marks US market’s fourth gaining month in a row following PCE data.
- Ocado threatens to sue M&S over payments.
- Rightmove revenue up 10% but warns on customer numbers.
- ITV sells 50% of BritBox International to BBC Studios
- Oil price gains amid production cut concerns
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown:
“The FTSE 100 is unlikely to meaningfully offset what has been a subdued month for the market, with the extra leap day failing to inject too much extra movement. There has been some positive noise from companies this week, including British Airways owner IAG beating expectations on strong consumer behaviour. But the reality is, investors are wise to the fact earnings growth is going to remain an uphill battle this year. The worst of the pain is probably behind the UK at this point, but that won’t translate to high-octane corporate growth.
The US market looks to be holding onto recent gains, with February marking the fourth straight month of increases. In Thursday’s trading session, consumer discretionary stocks were one of the leading sectors, helped by a robust PCE reading – although this was slightly up from December. The 0.3% increase was in line with expectations and helped allay fears that interest rate cuts are going to be kicked down the road even further.
The cat has been set among the pigeons in one of the UK’s biggest supermarket tie-ups. Ocado’s joint venture with M&S was supposed to culminate in a £191m payment from M&S once undefined performance targets were hit. Ocado’s alleged failure to meet these targets means M&S plans to hold onto the goods, and there’s now the potential for legal action. There will be real concerns about what the cost of litigation could be for both parties – but more importantly, what the souring of relations means for the future of M&S food. The Ocado deal was a way for M&S to create an online footprint, with customers encouraged by the broad breadth of options available by the combination of Ocado. There will now be questions about who the next partner might be for Ocado, and that could leave somewhat of a hole in M&S’ food strategy.
House-listing specialist Rightmove has posted a 10% increase in revenue, with profit rising at a slower rate of 7% thanks to rising costs.
Rightmove is the ultimate lesson in pricing power. Regardless of what’s going on in the wider market, whether it’s up or down, today’s estate agents can ill afford not to advertise on the site. That allows Rightmove to pump up its prices – average revenue per estate agent (ARPA) is running at £1,400, helped by the data-driven more lucrative marketing packages Rightmove is able to sell to agents. It also offers insulation from the housing market rollercoaster. It makes money from agents, rather than being too bothered about how many houses are being sold. One of the main attractions of Rightmove is its incredibly inflated operating margins, and these remain in-tact at over 70%. Running a website doesn’t cost too much, a very high proportion of revenue can drop down to profit. There are some challenges to consider, including the fact that the number of estate agents is falling – DIY options for listing and selling houses are putting a dent on the market, and the macro-economic environment means customer numbers are expected to fall.
ITV has sold its 50% interest in BritBox international to BBC Studios for £225m. The move cements what has been a disappointing BritBox journey for the group. The decision will help to streamline ITV’s focus as it continues with efforts to offset the structural decline in broadcast with its ad-funded streaming service, ITVX and the Studios business. There are a lot of the right ideas circulating, and this cash injection will help steady the ship, but there isn’t quite enough proof in this pudding yet.
Brent crude has strengthened to over $82 a barrel, as prices look set to climb 2% this week. There’s growing speculation that OPEC+ is poised to extend supply cuts, and Middle East tensions continue to have an effect. Recent data has shown larger-than-expected increases in US crude stocks, helping to keep a lid on price increases.
