European markets in good mood, WH Smith issues mild profit warning and 888 faces growth challenge

“Summer holidays are over; children are returning to school and we’re now only weeks away from the start of autumn. This shift in mindset also applies to investors as they sharpen their focus on market opportunities in the final section of the year,” says Russ Mould, Investment Director at AJ Bell.

“With the start of a new month comes a pick-up in equity markets across Europe. The FTSE 100 advanced 0.7% to 7,172, in France the CAC 40 scored a 1% gain, and in Spain the IBEX 35 pushed ahead by 1.6%. This positive momentum is welcome after a patchy summer.

“On the UK market, mining was the only sector to struggle after metal prices took a hit. Investors instead showed more interest in the oil and gas sector where commodities prices were stronger.”

WH Smith

“It’s quite something when a company issues a mild profit warning for the year ahead on the first day of its new financial year. WH Smith says its 2022 profits are likely to be at the lower end of expectations due to uncertainty over the travel sector and accounting finance charges linked to a bond issue.

“Market forecasts should have already factored in the bond charges, which suggests some analysts may not be on the ball. Indeed, Computacenter yesterday was forced to issue a trading statement saying market forecasts weren’t in line with the company’s expectations because less than half of the analysts covering the stock had changed their estimates following an update in July. Perhaps they were all in Cornwall jostling for space on the beach.

“WH Smith’s figures for the eight weeks to 28 August show how it is still operating on much-reduced sales across its travel arm, which includes sites in airports and train stations. The growing number of people who have been vaccinated is positive for people’s willingness to travel and therefore WH Smith’s earnings opportunities, but the spread of the Delta variant and ongoing travel restrictions means the exact pace of the company’s earnings recovery remains uncertain.

“It seems that current market forecasts out to August 2022 might have been too optimistic about how much money it might earn. WH Smith’s travel outlets are fueled by both domestic and foreign travellers and so it is impossible to judge its earnings potential simply by looking at how many countries are on the UK’s green list.

“Under the circumstances, WH Smith still seems to be holding up quite well and in the bigger scheme of things, today’s profit setback is not a sign of a business in trouble.”

888 Holdings

“Growth may have slowed for online gambling business 888 but there was enough evidence in its latest results to suggest the momentum built up during lockdown hasn’t entirely evaporated.

“Like several of its peers, 888 benefited from having punters stuck at home with little to do during the pandemic, with online gambling one of several indoor activities to see a boost.

“People reaching for their phones or other electronic devices to play roulette or poker and bet on the Euro 2020 football tournament provided temporary catalysts for a flow of business.

“Achieving growth in the remainder of the year could be a tough task for 888. The company believes it is up for the challenge given its investment in technology and strategy of having leading products.

“A commitment to ‘safer’ gambling demonstrates 888 has an eye on the threat posed by regulators amid growing awareness of the damage gambling can do.

“Where 888 has fallen a bit behind its rivals is on taking advantage of opportunities across the Atlantic as sports betting has been legalised across several US states.

“A partnership with media brand Sports Illustrated agreed in June doesn’t feel like it has the heft of the ventures other UK betting firms have agreed with heavyweight casino operators.”

These articles are for information purposes only and are not a personal recommendation or advice.