FTSE falls, GB Group targeted by private equity, Barratt reveals buyback as housing market shows resilience, Halfords motors higher, WH Smith dips despite reassuring update

“Amid widespread selling in global markets, the FTSE 100 followed suit on Wednesday morning,” says AJ Bell Investment Director Russ Mould.

“Action on energy bills continues to be widely trailed as new prime minister, Liz Truss, prepares for an official announcement on her policy.

“Given the big package that is expected, anything short could spark renewed selling in consumer-facing stocks.

“Sterling remains weak and that is leaving UK stocks vulnerable to approaches from overseas predators – cybersecurity GB Group the latest on the block as it is targeted by a US private equity firm.

“An already shrinking UK tech sector on the London market can ill-afford another departure, GB’s peer NCC is also pulled higher by the news.

Barratt

“The housing market enjoyed an unexpected rebound in August, suggesting that for all the challenges being thrown at it, the undersupply of homes in the UK is continuing to provide a level of support to the market.

“Certainly, Barratt Developments showed little sign of nervousness as it announced its full-year results. Barratt has got completions back to pre-pandemic levels, no mean feat given labour and materials shortages as well as escalating costs, and has signalled some confidence in the outlook by sanctioning a £200 million buyback.”

Halfords

“Credit where it is due, Halfords’ latest update reveals considerable resilience given the challenges being thrown at consumer-facing stocks at present.

“The motoring and cycling retailer is notably sticking with its annual forecast as it looks to balance the need to mitigate the impact of rising input costs while still offering its customers decent value.

“People need their cars for everyday life so spending in this area is likely to be more resilient than on more discretionary items and the strength of Halfords’ motoring services business reflects this situation.

“Moving to a model where a significant chunk of sales is services-related should potentially improve the visibility of earnings too.

“If they are well executed loyalty schemes are a no brainer for a retail business, helping to secure repeat business at what is usually a limited cost, and Halfords’ Motoring Loyalty Club certainly looks to be going well.

“Sales of cycling products, appropriately enough, tend to be more cyclical and this area of the business is looking like more of a clapped-out old racer than a shiny new carbon-fibre road bike.

“For the time being buying a new bike is unlikely to be a priority for cash-strapped households, but Halfords can afford to lean on the motoring business and wait for the next upswing in demand.”

WH Smith

“After June’s impressive trading update, expectations were perhaps running too high for WH Smith, with investors today seemingly disappointed it hasn’t raised guidance once again in its latest update.

“Given the fragile nature of the retail sector, the fact it remains on track must be seen as a positive, particularly when you consider that plenty of other companies on the high street or selling goods online have started to show cracks, with profit warnings creeping out.

“WH Smith’s business model is split into two – one part is to generate as much cash as possible from the high street stores and just keep them ticking over without expecting too much growth. The other, more exciting, part is to use the travel shops as the growth engine for the group.

“The fact travel sales are now above pre-pandemic levels is very encouraging as it shows its strategy of rolling out new stores and reengineering existing ones to include broader categories such as health and beauty is working.

“There are still some levers it can pull to enhance the financials from the high street shops such as find more places to cut costs including deals with landlords to cut rent. The travel business is all about being clever with the floor space and planting as many new flags as possible around the world.

“For a business that most people associate with selling the Radio Times and a big packet of felt tip pens, there’s no getting over the fact that it has managed to move with the times and turn a seemingly tired brand into an ever-expanding retail group.”

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