Marks & Spencer pleases with another profit upgrade, ITV on course for record advertising revenue, and strong corporate results overshadow inflation fears

Marks & Spencer

“Something spectacular must have happened since August for Marks & Spencer to upgrade earnings guidance once again. Back then, it believed pre-tax profit for the year would be above the upper end of a previously guided £300 million to £350 million range. Now it’s talking about profit hitting £500 million which is quite some jump,” says AJ Bell Investment Director Russ Mould.

“Food sales are doing incredibly well, particularly instore. It has really nailed the proposition with decent quality products and an ever-widening range of items. Quality is the key word as it caters for a specific type of customer who is happy to pay that bit extra for something nice.

“Its online joint venture with Ocado has also helped the business reached a broader audience, such as individuals who want higher quality products but don’t want the faff of visiting a store.

“Clothing continues to be a mixed bag, but the company comes across as more confident about its prospects. Overall sales aren’t growing but operating profit is, thanks to selling more items at full price.

“Marks & Spencer has a reputation for being the place you buy you undies and socks, or perhaps push the boat out and buy a pastel-coloured sweater. Yet that isn’t enough to sustain a proper clothing business.

“Suits and formalwear have been pushed to one side and more floorspace given to athleisure, jeggings and jeans. The only problem is that so many of its customers are old and don’t want to wear splashproof running bottoms. The company needs to attract a younger crowd and it could take a long time to change its image as the brand is still associated with slippers and socks.

“Just imagine if Marks & Spencer and Next merged. The former has nailed the food proposition and the latter is an expert in clothing. Together they could be a real force in the retail sector. But such a tie-up seems unlikely as Next doesn’t need any help and it is full of bright ideas to keep growing profits, food certainly not being on the menu.”

ITV

“There was always going to be plenty of growth for ITV in 2021 given the comparison with a pandemic disrupted 2020 but for the business to be on course for the highest advertising revenue in its history is an impressive achievement.

“It underlines the continued relevance of television as a medium to advertisers given its reach and its arguably greater degree of safety compared with digital advertising.

“ITV content is highly curated unlike the Wild West of the internet where ads can end up running next to controversial or inappropriate content.

“All this advertising revenue is making a substantial cash contribution and it was notable to see ITV double its guided cash conversion rate to 60%.

“Total viewing figures are down, understandable given we’re not all stuck inside without any other distractions, but ITV’s share of viewing is up.

“ITV’s strong performance is also an endorsement of its ‘More than TV’ strategy as it derives increased amounts of revenue from streaming through its ITV Hub and from production revenue from ITV Studios as it capitalises on strong global demand for content.

“ITV highlights a strong showing from its Britbox streaming venture with the BBC but, as has been the case since its inception, it delivers limited detail on exactly how the service is performing.

“The question now is what next for ITV amid rumours it might bid for its free-to-air counterpart Channel 4 if the Government pushes ahead with a privatisation of the latter.

“There is some logic to such a move as it would help ITV reach a different audience and secure access to some valuable content.”

Markets

“Some strong corporate updates helped outweigh continued concerns about inflation as the FTSE 100 made a positive start on Wednesday.

“China continued to offer evidence of mounting inflationary pressures as factory gate prices saw their biggest increase since 1995.

“Given Chinese goods are widely exported around the globe, there is a risk that inflation gets exported too. There will be significant focus on US inflation figures when they are released later today.

“Both the Bank of England and the US Federal Reserve surprised the markets by adopting a softer stance on tightening monetary policy but if prices continue to rise then the pressure to act more quickly on scaling back financial stimulus and raising rates will build too.”

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