FTSE flat, pound up after strong jobs figures, Diageo eyes greater market share, and Restaurant Group in robust shape

“The FTSE 100 continues to be stuck in a bit of a holding pattern,” says AJ Bell Investment Director Russ Mould.

“Holding the index back a bit was strength in the pound, hitting the relative value of its dominant overseas earnings, as stronger than expected unemployment figures suggested Bank of England Governor and ‘unreliable boyfriend’ Andrew Bailey might deliver the promised rate rise in December.

“Investors were dialling up sometime forgotten stock Vodafone as it lifted its forecasts for the full year following a strong first half as roaming fees and handset sales came back.

“Despite the improvement in its fortunes it is encouraging to see that CEO Nick Read is not resting on his laurels – pledging to do more to boost returns.

“There was nothing ‘exceedingly good’ about the latest offering from Mr Kipling owner Premier Foods as it soured sentiment with a significant decline in first half revenue.

“The benefit from lockdown, when people reached for its brands amid a bout of comfort eating and cooked at home rather than eating out, has faded away.”

Diageo

“Diageo has declared it is party time as far as its growth ambitions go.

“Often considered to be a pedestrian company with slow but steady revenue gains each year, Diageo has now announced bold ambitions for a 50% increase in its share of the alcoholic drinks market by 2030.

“Key to achieving this goal is to invest more money in marketing, digital capabilities and staff. Diageo already has a strong reputation for being a dab hand at clever marketing when it comes to Guinness so perhaps it has similar plans to make its other products front of mind for consumers.

“It helps that Diageo already has a global reach and a wide range of strong brands across areas like vodka, whisky, gin and tequila. It came under criticism for paying top dollar for relatively young brands like Casamigos and Aviation Gin, but their sales are growing incredibly fast, and the products are ‘on trend’ for drinkers.

“A cynic might say it is all very well Diageo declaring big growth goals but achieving them is another matter. However, from a stock market perspective, investors like to know what goals a business thinks are achievable as it sets expectations for future earnings.

“Currently helping Diageo is the fact that people have been eager to get out and socialise following lockdowns. We could have seen a big chunk of the nation decide they no longer wanted to congregate in crowded places, but so far, the signs have been very encouraging for the drinks sector.

“Pubs and bars are filling up again, and nightclubs are also getting back on their feet. This is providing momentum for Diageo’s earnings and what would help next is a removal of more travel restrictions, as that could pave the way for a recovery in duty-free spirits sales.”

Restaurant Group

“Despite the mounting cost of living crisis in the UK things are looking brighter for Wagamama-owner Restaurant Group.

“After a period when there has been very little appetite for the shares, serving up an upgrade was always likely to get a hearty welcome from the market and so it proved this morning.

“Significantly, strong trading is allowing Restaurant Group to rapidly pay down debt putting it in a better place to weather any further hits to the business from the reintroduction of restrictions and/or a downturn in the economy.

“The company has clearly sharpened its proposition outperforming the wider market across Wagamama, its leisure business and the pubs division. Even its concessions in travel hubs are starting to perform better as passengers return.

“Most shareholders will be thanking their lucky stars that Restaurant Group successfully captured Wagamama back in 2018.

“While the deal attracted some criticism at the time as being too expensive, without it, Restaurant Group would have headed into the most testing period for the restaurant industry in generations with fairly pedestrian and in some cases downright tired franchises.

“Having such a popular format at least gave Restaurant Group a fighting chance and it now seems to have emerged as a more robust business with an increasingly streamlined estate and revived fortunes.

“A more robust Restaurant Group should also benefit from the significant amount of operators which have withdrawn from the market thanks to Covid, leaving it with a greater share of Britons’ eating out spend.”

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