Meta gives markets a lift, Unilever’s weak pricing power, Argos becomes a thorn in Sainsbury’s side and Barclays’ beat overshadowed by structured products hit

“If you were looking for candidate to come to the tech sector’s rescue it might not have been Meta Platforms given its reputation has taken a real battering of late,” says AJ Bell Investment Director Russ Mould.

“Apparently though, expectations for the company behind Facebook, Instagram and Whatsapp were pitched at such a level that merely doing OK was enough to send the shares surging higher.

“Crucially user numbers for Facebook ticked up, giving investors something to celebrate in the here and now with the company’s investment in the metaverse a much longer term and uncertain prospect.

“The FTSE 100 started Thursday on the front foot, with Standard Chartered storming to the top of the FTSE 100 leaderboard off the back of better-than-expected profit and a positive outlook for the emerging markets-focused bank.

“Commodity price volatility helped give Glencore a boost and showed the merits of its trading arm at a time when the company has been forced to cut production forecasts for many of the metals it mines thanks to Covid-related staffing issues.

“Shares in Premier Inn owner Whitbread were also in demand despite a warning from the company over rising costs. The return of dividends feels like a significant milestone in its recovery from the pandemic as it posted a big increase in bookings.

“As a value-based proposition Premier Inn could be well positioned as people look to get away despite cost-of-living pressures.

“Its German business continues to struggle, mainly because of the slower pace in easing Covid restrictions in the country. However, if this part of the group continues to underperform, Whitbread may come under pressure to sell it off.

“Numbers from kitchen supplier Howden Joinery suggest Briton’s appetite for doing up their homes hasn’t disappeared entirely despite squeezed household budgets.”

Unilever

“The true definition of a company with pricing power is one which can push up its selling prices without dampening demand. Unilever has managed the first bit but not the second. Each of its three core divisions has seen a drop in sales volumes in its first quarter as a result of raising prices. 

 “While Unilever talks about another solid quarter of sales growth, pressure on costs means its profit margins aren’t suddenly going to fatten up because people are paying more for a jar of Marmite or a box of Magnum ice creams. In fact, it is guiding for operating margins to be at the bottom end of its previously guided range. 

 “In the UK, consumers are starting to trade down to supermarkets’ own-label products because they are cheaper. That presents a real threat to Unilever’s earnings in the near-term if people shun its higher priced items. There is a risk this trend spreads to other geographies. 

 “The inflationary pressures have taken the spotlight off chief executive Alan Jope for a while, but a resumption of normal trading conditions will inevitably revitalise the debate over whether he is the right man to keep running the business, given poor returns for shareholders under his leadership.”

Sainsbury's

“It’s lucky that Sainsbury’s has adopted a ‘food first’ strategy because its general merchandise sales are very disappointing of late.

“Argos has been a drag on the business in recent quarters and a decline in sales could get even worse as its products are precisely the type of thing that consumers may cut back on.

“It’s an easy decision for anyone trying to curb their spending amid the cost-of-living crisis to stop buying nice to have but non-essential items sold by Argos. Think trampolines, bedroom furniture and toys.

“Argos originally helped to broaden the appeal of Sainsbury’s to shoppers, but now it seems to be getting in the way.

“A lot of effort has gone into moving Argos’ operations out of standalone stores and into supermarket concession units so it’s unlikely that the operation would be put up for sale any time soon. But if Sainsbury’s continues to push hard on the ‘food first’ strategy, one could speculate that Argos might find a more loving owner elsewhere.”

Barclays

“If it hadn’t been for a monumental mess of its own making Barclays could have been really riding high off the back of its first quarter showing.

“Underlying performance was way better than expected. This was a huge beat on earnings which suggests its investment banking operation is doing quite a bit better than its global peer group.

“However, when you take a more than half a billion-pound hit over a clerical error relating to structured products it rather detracts from this positive picture. Particularly when it means a previously planned programme of buying back shares must be shelved.

“Human error is always a possibility but the concern for the market will be that the controls in place are not sufficiently robust to prevent these kind of problems cropping up.

“It is something which recently appointed chief executive C.S. Venkatakrishnan will need to get a handle on.

“As a one-off the market can probably stomach this setback but if it becomes a pattern then investors will be much less forgiving. Particularly when you consider that Barclays has more than enough issues which aren’t of its own making to contend with as bad debts linked to the cost-of-living crisis start to build.”

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