Multitude of factors troubling markets, DS Smith lifts guidance and Hollywood Bowl strikes with earnings upgrade

“A troubled backdrop has put markets in the red at the start of the new trading week. Renewed attacks on Kyiv following an explosion on the Crimea bridge at the weekend has proved a sad reminder that the war is far from over,” says Russ Mould, Investment Director at AJ Bell.

“Also leaving investors on edge is the news that the Bank of England has doubled the amount of government bonds it is prepared to buy each day under a support initiative. While this programme is designed to provide calm to the markets following concerns about pension funds dumping gilts on the market, the fact it has doubled the previous limit of £5 billion also acts as a reminder that we’re living in unsettled times.

“Making matters worse were last Friday’s US jobs numbers where lower than expected unemployment will only serve to keep the Federal Reserve on its path of interest rate hikes, something the market did not like to hear judging by the sell-off on Wall Street which then extended to Asia on Monday.

“Also contributing to Asia market weakness are tighter export controls in the US, restricting the sale of semiconductors made with US technology unless the vendors have an export licence. There are also restrictions on US individuals or companies working with Chinese chipmakers and limits on exporting manufacturing tools that would help China develop its own equipment.

“Despite this market backdrop, it is interesting to note that quite a few UK-listed companies came out with better-than-expected news on Monday. Packaging group DS Smith, pawnbroker Ramsdens, fashion retailer Quiz and leisure group Hollywood Bowl all reported trading, sales or earnings ahead of forecasts.

“Alas, these pockets of good news weren’t enough to prop up the UK stock market. The FTSE 100 slipped 0.4% with utilities among the worst performing sectors. Reports suggest the UK Government is working on plans for a temporary revenue cap to help lower wholesale energy prices. There is a fear this would deter investment in new renewable energy projects, which in turn reduces the opportunities for energy companies to make additional profits in the future, something which does not go down well with investors.”

DS Smith

“Over the past decade online shopping made the tired old packaging sector relevant and interesting again – including names like DS Smith. The need for boxes to transport goods to people’s doorsteps supported these businesses’ growth, with their strong commitment to recycling also helping to earn them helpful ESG credentials.

“No surprise then that DS Smith shares have been weak this year as green investing has gone out of fashion and concerns about a slowdown in e-commerce, linked to the cost-of-living crisis, have had a knock-on effect.

“It’s in the context of concerns about demand which DS Smith’s lifting of annual guidance has been received so positively.

“Despite falling volumes DS Smith has demonstrated genuine pricing power. Innovation in the sector means there’s a bit more to what it produces than the soggy old cardboard boxes sitting in your attic.

“DS Smith’s ability to keep a tight rein on costs, despite significant inflationary pressures is another tick in the box and shows this is a well-managed outfit.”

Hollywood Bowl

“While the economic outlook is undoubtedly bleak, people will likely need a distraction from the day-to-day grind more than ever and Hollywood Bowl looks confident that a trip to its lanes will still hold appeal for hard-pressed consumers.

“An increase in earnings guidance, not only above Covid levels but also those seen pre-pandemic, underpins its decision to push ahead with a roll-out of new centres in both the UK and Canada and, significantly, to return to paying dividends. The latter is a big step given the difficult consumer backdrop and implies real confidence in its proposition.

“Hollywood Bowl has put significant effort into making its venues genuinely appealing places to go. Gone are the stained carpets and musty-smelling hire shoes to be replaced by upgraded seating, vibrant signage and improved diner and bar facilities.

“Hollywood Bowl can’t afford to take its eye off the pins if it is to continue to strike a chord with leisure seekers, who will have less cash to go around. But it looks to be doing the right things, drawing people in with beer, bowling offers and deals for kids to eat, drink and bowl for under a tenner.

“If Hollywood Bowl were to experience a downturn in trading, it at least has the buffer of a strong balance sheet to sustain it.”

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