UK orders slow at Just Eat, RBS hit by Brexit, and WPP waves goodbye to US clients

“The FTSE 100 started in subdued mood on Friday ahead of the release of the latest US GDP figures and amid some mixed corporate news on an unusually busy end to the week in terms of company announcements", says AJ Bell Investment Director Russ Mould.

“A retreat in crude oil prices also hit index heavyweights BP and Royal Dutch Shell putting further pressure on the index".

Just Eat

“Takeaways firm Just Eat is a ship without a captain following the departure of Peter Plumb earlier this year and it could be sailing into dangerous waters if today’s first quarter update is any guide.

“While a big noise is made about the strength of its international business, UK order growth slowed sharply in the period.

“As you would expect its excuses are made to order and ready to go – the comparison with a strong performance a year before, warm weather in February and Easter coming late.

“What it doesn’t mention is the increasingly competitive landscape for online takeaways with Deliveroo and Uber Eats making plays for market share.

“The company has already responded to the competitive threat with a change of model, investing in delivery services at the expense of short-term profitability.

“But this alienated some investors who liked the strategy of simply providing an online platform for local takeaways, and thus avoiding having to spend that much cash.

“Plumb’s replacement is likely to have plenty on their plate, including activist pressure from US shareholder Cat Rock Capital despite a nascent recovery in the company’s share price so far in 2019.”

Royal Bank of Scotland

“After digesting the shock of the resignation of chief executive Ross McEwan yesterday, shareholders in Royal Bank of Scotland now have to contend with a downbeat set of quarterly results.

“There were a few items to cause concern. A key metric – the net interest margin – fell quarter-on-quarter. Adjusted profit was down year-on-year and short of consensus forecasts – even if lower impairments saw headline profit beat expectations.

“Returns targets for the year now look vulnerable as the bank itself acknowledges. Its substantial exposure to business banking meaning Brexit uncertainty is having an outsized impact, with firms less likely to take out loans until they have greater clarity on the UK’s departure from the EU.

“In summary, this statement could be seen as softening the market up for a profit warning later in the year. Though, to give RBS some credit, the things over which has greater control are broadly on track with it sticking to its annual cost reduction target of £300 million.

“Today’s update is a reminder of what a tough job McEwan’s successor will be walking into despite the progress the New Zealander made in his five-and-a-half-year tenure.”

WPP

“At first glance this trading update from advertising agency WPP might ring some alarm bells. The loss of key clients across the Atlantic is the main culprit behind a 2.8% decline in first quarter sales.

“However, this was more or less exactly what the market expected and guidance for the full year for a 1.5% to 2% decline in revenue has been maintained.

“The sale of its market research business Kantar is also said to be progressing in line with expectations, so investors are probably reassured by the lack of any nasty surprises.

“Or in other words things are bad, but definitively no worse than feared. For now, that may be enough for chief executive Mark Read, a little over six months into the job having replaced WPP’s founder Martin Sorrell.

“He has been looking to keep a lid on expectations describing 2019 as a ‘foundational year’ in the turnaround of the business which faces competition from global consultancy firms on one hand and from digital giants like Google and Facebook who are looking to cut out the agency middlemen and deal directly with advertisers.

“He may get the grace of the next 12 months to lay the foundations for recovery but is likely to face pressure to get on with building WPP back up again as 2020 looms.”

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