FTSE lower as inflation comes in higher than forecast, Cineworld told to cough up C$1.2 billion, and Currys sees weaker sales ahead of Christmas

“The FTSE 100 started Wednesday on the back foot as investors got a big reminder that while all the focus has been on the latest twist in the Covid-19 pandemic, inflation risks haven’t gone away,” says AJ Bell Investment Director Russ Mould.

“The squeeze on the cost of living is just getting worse as consumer prices jumped 5.1% in November, the highest annual increase in a decade, putting renewed pressure on the Bank of England to take action.

“It seems unlikely the Bank will move on rates tomorrow as the UK looks ahead to a potentially substantial wave of Omicron cases. However, today’s data suggests Andrew Bailey and his colleagues don’t have the luxury of too much time to see how the new variant affects the economy. If they don’t act before Christmas, they have may little choice at their first meeting of 2022 at the beginning of February.

“Their big fear is this will be too late or to quote a one-time German central banker on inflation, once the toothpaste is out of the tube you can’t get it back in again.

“Ahead of the big meeting at Threadneedle Street this Thursday lunchtime, the US Federal Reserve is set to meet overnight with a focus on whether it will move now on tapering financial support for the economy. All in all there’s plenty for investors to fret about at present.”

Cineworld

“Cineworld’s hunger for growth has come back to haunt it.

“Pre-pandemic the company had expanded through acquisitions including taking on considerable debt to plant a flag in the US via the purchase of Regal Entertainment.

“Despite having borrowings up to its eyeballs, Cineworld then chased more growth by striking a deal in December 2019 to buy Canada’s Cineplex. That was a bold move, and many people suggested its eyes were bigger than its belly.

“The timing couldn’t have been any worse. The pandemic struck and it looked like Cineworld’s only way to survive this crisis was to bail out of the Cineplex deal, given that it had massive debt repayments and suddenly no income.

“Cineworld argued that Cineplex had breached certain parts of the agreement and so it pulled out of the deal. This resulted in a legal battle which has now ended in favour of the Canadian party.

“It means Cineworld is now facing a C$1.2 billion bill for damages. This ruling threatens to put significant financial pressure on the business if its appeal is unsuccessful.

“Ironically the ruling comes three months after an agreement by Cineworld to pay $214 million to disgruntled Regal shareholders who argued that the £2.7 billion acquisition of the US cinema chain in 2018 wasn’t done at a fair price.

“Cineworld is losing credibility fast with investors, having taken too many risks with expansion and paid the price for unscrupulous tactics.”

Currys

“First half results from electrical goods retailer Currys suggests its key trading period is being affected by the impact of Omicron on consumer sentiment.

“While the results themselves are pretty strong, it is the comments on current trading which have helped short circuit the share price.

“Currys specifically references the new variant, and it may have also seen demand for Christmas gifts brought forward as shoppers looked to get ahead of potential shortages. While it has done a decent job of mitigating them, Currys is not immune from supply chain issues and extra costs itself.

“The big danger is that having enjoyed a bumper period after the pandemic hit as people splashed out on lots of consumer electronics, the same level of demand just isn’t there anymore.

“While Currys is sticking with its full year guidance for now, thanks to its strong first half, there is an obvious risk the second half is sufficiently bad to require that guidance to be trimmed or, in the worst case scenario, slashed.

“Shareholders can take some comfort from the company’s strong balance sheet position and faltering competition which should see Currys hold on to market share gains. Underpinning this is Currys’ improved customer service, something which could prove crucial to its fortunes in the longer term.”

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