Government breathes sigh of relief as gilt yields drop, ITV mulls production business sale, ASOS seeks more flexible credit and Eve Sleep shares suspended

“The sigh of relief in Downing Street this morning would likely have been audible halfway down Horse Guards Parade as investors reacted positively to new Chancellor Jeremy Hunt’s rescue mission,” says AJ Bell Investment Director Russ Mould.

“Gilt yields have fallen sharply, the pound is higher and unless Hunt stuffs up his early trailer of new fiscal measures, it seems the government has bought itself some breathing room with the financial markets. This is particularly reassuring given the Bank of England has, officially at least, concluded its intervention in the gilt market.

“Longer term there are big questions about the impact of what looks like being hefty real-terms cuts to public services. However, in the short-term, Hunt, like a professional problem solver brought in to steady an ailing business, seems to have done what was required. Even if it meant tearing up much of the mini-Budget and starting again.

“The FTSE 100 is steady, no mean feat given it is not helped by the relative strength in the pound, and housebuilders are higher amid hopes the mortgage markets might start to stabilise.

“Overnight focus is likely to fall on Chinese GDP figures, to see how the world’s second largest economy is coping after its latest Covid hits and whether measures to support growth are actually having any impact. An unexpected delay to trade figures due out on Friday won’t have done anything to calm any jitters.”

ITV

“Enormously frustrated with its stock market valuation, ITV appears to be looking for ways to put a spotlight on what it perceives as the company’s true worth.

“Reports suggest there are talks over the partial sale of its ITV Studios production arm to private equity or independent producers. Selling a stake in the business rather than the whole thing might be enough to highlight its value.

“It may also be in management’s minds that thanks to weak sterling and a depressed valuation it is at risk of being bought up wholesale on the cheap. Virgin Media owner Liberty Global has long held a strategic stake in the free-to-air broadcaster so that is a name to watch.

“ITV faces short-term problems associated with its exposure to advertising, likely to suffer in any slowdown, and longer-term concerns over a structural shift away from analogue television.

“The market reaction to its ITVX digital platform plans were pretty savage, with significant concern over the costs involved. The expansion of the production division, which has been underpinned by acquisitions made by ITV itself, is all part of an attempt to make the business less reliant on volatile advertising revenue.

“A winter World Cup may not be popular with some football fans and the game’s schedulers, but it could prove a timely boost for ITV during what could otherwise be a harsh winter.”

ASOS

“The fact ASOS is talking to its lenders about more flexible borrowing facilities just goes to show how conditions are very challenging for retailers.

“Reports that Allianz Trade has more than halved its insurance cover for ASOS suppliers would suggest the online retailer is seen as a higher risk entity.

“Suppliers take out insurance cover as protection between taking an order and being paid for it. When cover is unavailable, suppliers seek upfront payment from customers, which can put pressure on the latter’s finances as they need to hand over cash before being paid by their own customers.

“Retailers have been struggling with the cost-of-living crisis where consumers are watching every penny, while at the same time they have had to stomach higher costs. Many shopkeepers, virtual or physical, have seen a rise in inventories as demand has weakened. This clogs up valuable storage space and raises the risk they’ll have to slash prices just to shift the stock, thereby depressing profit margins.

“The news is yet another reason for investors to stay negative on ASOS shares, which are now down 78% year-to-date and are trading at a 12-year low.”

Eve Sleep

“It’s all over for investors in Eve Sleep after the mattress seller prepares to go into administration. The business will keep trading while the administrator looks for a buyer, yet shareholders will have almost certainly lost everything. Trading in the stock has been suspended, and typically in these situations, shareholders won’t get anything back even if a buyer is found.

“Eve Sleep has been more of a prolonged nightmare for investors rather than a stock that is tucked away and slowly works its magic. It has gone from 127p per share in 2018 to 0.54p in just over four years. Management couldn’t generate a profit and the company was haemorrhaging cash.

“It goes back to the basics of business – you need a good idea, good execution and enough people to want to buy the product so you receive more money than you spend. Sadly, Eve Sleep didn’t have all the right elements.”

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