Imperial Brands hit by vaping backlash, and DFS dragged down by UK property market gloom

“A 0.3% rise in the FTSE 100 to 7,309 is driven by strength in utilities, oil producers, miners and insurers,” says Russ Mould, Investment Director at AJ Bell.

“The most heavily-traded stock by volume was British Airways owner International Consolidated Airlines which saw its shares fall after downgrading earnings guidance.

“Profit warnings were also on the menu for Pearson and Imperial Brands."

Imperial Brands

“It is not a good time to be a vaping company. Political and regulatory pressures are coming down hard on the sector and resulting in fewer US retailers and wholesalers ordering or promoting vaping products. Competition is also fierce, particularly in places like Australia.

“Tobacco companies like Imperial Brands have bet everything on vaping and other smokeless alternatives being the future of their business. While the public has been slowly switching from cigarettes to smoke-free products, there is a growing negative backlash in other circles caused by concerns over the large number of younger people vaping and the potential health threats.

“Stocks like Imperial Brands have historically been bought by investors for their seemingly resilient earnings and generous dividend payments.

“Imperial Brands is highly likely to feature in many people’s pension pots as it has historically been seen as a dependable source of income.

“Many fund managers have been snapping up even more shares in recent years because the sector has been trading on much lower valuation multiples and for the aforementioned income attractions which shine in a low interest rate environment.

“Unfortunately the cigarette industry can no longer be seen as a defensive investment given the increasing political and regulatory concerns. The risks are increasing on a daily basis and Imperial Brands’ troublesome trading update may not be a one-off blip.”

DFS

“You won’t be seeing any headlines saying ‘sofa so good’ for DFS given a weak start to its new financial year.

“All the chaos around Brexit and Boris Johnson seems to have knocked consumer sentiment and resulted in fewer people hitting DFS’ shops.

“Weak property market data will have also cast a cloud over the business. Consumers may have been less compelled to move home, or their moving plans have been delayed, as Brexit uncertainty has dampened sales.

“Moving home is a major catalyst for buying a new sofa so DFS is now feeling the UK property market’s pains. UK house prices saw their first September fall since 2010, according to the latest Rightmove survey, and the number of sales agreed in the month also declined.”

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