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Home HRCommunication Market ReportĀ – weak start for FTSE, consumer stocks in focus and oil price dips

Market ReportĀ – weak start for FTSE, consumer stocks in focus and oil price dips

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  • FTSE has a weak start following volatile US trading and weaker data in China
  • Moonpig full year results show 6.6% rise in revenues
  • Watches of Switzerland continues to grapple with a slowdown
  • Brent crude slips on unexpected US inventory build
  • Retail bellwethers Halfords and Currys outline recent performance
Sophie Lund-Yates

Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown:

 ā€œThe FTSE 100 is off to a weak start, just about holding off from extending Wedesdayā€™s losses. This follows a relatively choppy trading session in the US, ahead of President Joe Biden and Donald Trumpā€™s closely watched debate in Atlanta later today. Thereā€™s also news of a marked slowdown in Chinaā€™s industrial profits for May, adding fuel to concerns over a protracted slowdown in this important economy.

Greeting card specialist, Moonpig, has seen full year sales rise 6.6%, amid what has been a tough backdrop. Profits have come along for the ride too. There was a lot of fanfare surrounding Moonpigā€™s listing on the London Stock Exchange in recent years, but the growth trajectory isnā€™t as high octane as some would have wanted. Better-managed stock levels and the leveraging of AI to produce more personalised cards are both good to see, but a longer run of positive progress wouldnā€™t go amiss. One of the primary concerns is a lack of real buffer between the likes of Moonpig and other rivals ā€“ both existing and future. For now though, the groupā€™s put in a resilient showing, even if the shares are unlikely to be on a rocket ship to the moon.

Watches of Switzerland has failed to reignite its languishing share price after posting full year results, which showed sluggish revenue growth and a drop in operating profits. A lot of the pain stems from the UK market, where higher prices were introduced at a time of weakening consumer confidence, as well as continued pressure in the luxury jewellery market. While some of the problems are outside the groupā€™s control, a tighter grip on proposition and pricing is something the marketā€™s looking for.

Brent crude has dipped to around $85 a barrel, coming off recent highs, partly reflecting higher-than-expected inventories of the black stuff in the US. Wider demand concerns, following weaker Asian economic data, are also at play. The next catalyst for the oil price will come in the form of US PCE inflation data, which will be an important input for interest rate policy makers.”

Halfords: Profits slide, more road bumps ahead – Derren Nathan, head of equity research, Hargreaves Lansdown:

ā€œHalfords, the one-stop-shop for motorists and cyclists, has delivered full year results in line with previously lowered guidance. Strong growth in services provided by the groupā€™s Autocentres was tempered by a low single digit uplift in retail operations. The high levels of promotional activity failed to bolster the topline thereby leading to a material fall in underlying profits.

Halfords is sticking to its strategy of expanding the better performing services division, which benefit from higher levels of recurring revenue. This should stand it in good stead further down the line, but short-term headwinds are still blowing strong. A perfect storm of low consumer confidence and poor weather has resulted in soft trading so far in the current year. Meanwhile, high freight costs and the increase in the national minimum wage are weighing on costs. The shares are trading a little below the long-term average but for now thereā€™s no sign of a catalyst for a re-rating.ā€

Currys: returns to profit as margins improve – Guy Lawson-Johns, equity analyst, Hargreaves Lansdown:

ā€œAfter a year of takeover talk in what has been a tough trading environment, meeting guidance with a 10% rise in full year profit should be considered a good result. The continued recovery indicates potential easing of market headwinds and signal a cautious optimism for the future.

Consumers have struggled to justify upgrading appliances, with demand for small electrical goods particularly affected. But an increase in UK consumer confidence, driven by rising economic optimism, suggests that a recovery in discretionary spending may be underway. Even a partial return to the longer-term growth trends Currys previously experienced could significantly benefit the group.

Importantly, the Nordics have also shown some signs of life, sharing in the groupā€™s 10% underlying profit growth. But while margins have improved, prolonged weakness in consumer demand will be on everyoneā€™s mind. A continued improvement will need to be seen to before management can say the recovery job is done. 

The sale of Currysā€™ Greek operations has positioned the company as a leaner and more focused business entering the new year. As expected, some of the proceeds have been used to pay down the debt levels which have historically weighed on sentiment. Alongside strengthening the balance sheet, the simplification of the business has created bandwidth to expand into new areas.

The latest of which has seen Currys become Microsoft’s first official retail repair partner in the UK. Tapping into the circular economy may be a shrewd move from an environmental standpoint, but the potential cannibalisation of new business has raised eyebrows. CEO Alex Baldock has dismissed these concerns, but we will be assessing future updates for a clearer view on the long-term impact.

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