Big day for US inflation figures, WH Smith restarts dividends, Centrica lifts guidance and launches buyback, B&M reports strong start to Golden Quarter

“It’s a big day for inflation watchers as the US releases its latest cost of living figures. The consensus forecast is for the annual CPI inflation rate to fall from 8.2% in September to 8% in October. However, the month-on-month rate is expected to jump from 0.4% to 0.6%, suggesting that inflation remains sticky and that pressures on consumers and businesses are still severe,” says Russ Mould, Investment Director at AJ Bell.

“Pricing power has been a big theme on companies reporting over the past few months, with many businesses talking about how they’ve passed on extra costs to the customer. While that helps to preserve their profit margins, it does suggest a continuation of the strong inflation environment.

“European stock markets were relatively calm ahead of the inflation figures, with the FTSE 100 flat at 7,295 and the key indices in Germany, Spain and France down approximately 0.3%.

“Asia was more volatile with a 1.7% drop in the Hang Seng index in Hong Kong thanks to weakness in tech stocks.

“Utility stocks were in demand in the UK after Centrica’s results, while pharma, healthcare and banks were also in favour.”

WH Smith

“WH Smith has long viewed its travel arm as the growth engine for the business and there is now real momentum in this division.

“Operating stores from airports, train stations and roadside service hubs puts WH Smith in a position where it can charge more than the high street or internet for products as it enjoys a captive audience.

“Customers don’t have a lot of time or choice to shop around when waiting for a plane or train, so they’ll simply pick up whatever’s on offer and regardless of price.

“WH Smith has been spreading its wings across the US, Europe and Australia with great success. The fact its North American business is poised to have bigger profits than its UK high street business shows this is a very different beast to the WH Smith most people know of old.

“Yes, it still has those messy shops up and down the UK selling overpriced chocolate oranges and calendars from years ago, but these outlets are cash cows for the business. It’s found a formula that brings in the money without having to worry about sprucing up the appearance of the stores.

“The return of the dividend will be welcomed by investors, but more importantly it signals that WH Smith has reached a tipping point. Covid appears to be in the rear-view mirror for the business and management is upbeat on the company’s prospects. That sends a very strong signal to the market.

“Interestingly, the group is also making waves with its digital operations. WH Smith is not typically associated with the online channel, but its website does sell a wide array of goods and it also operates several specialist sites. Funkypigeon is a profitable greeting card seller while it also sells the widest range of pens in the world via the Cult Pens website. These initiatives would suggest that WH Smith is not the old-fashioned retailer which many people think it is.”

Centrica

“For as long as energy companies continue to post record profit while consumers are facing soaring energy bills the debate around some form of windfall tax is not going to go away.

“However, some of the heat has been taken out of the debate by some very mild autumn temperatures – reflected in a weak showing for Centrica’s British Gas retail business.

“Centrica is both a producer and supplier of energy and it’s on the production and marketing side that it is continuing to enjoy extremely strong profit – enabling it to lift guidance and unveil a buyback.

“Centrica is concerned about the impact of some customers being unable to pay their bills and it is clearly aware of the reputational issues as it puts more money into a customer support fund.

“It may not feel like it just now with temperatures regularly in double digits nearly halfway into November, but winter is coming and the pressures are only going to get more acute.

“Centrica will be nervously awaiting the outcome of the Autumn Statement a week today where there may an extension of the existing windfall tax.”

B&M

“B&M had a good pandemic as it was able to stay open thanks to its food offer when other rivals could not.

“In theory the current environment should also be supportive as its discounted offering chimes with a consumer struggling to make ends meet.

“To some extent this is the case and is reflected in a positive outlook for festive trading alongside first-half results with the company already shining in what B&M calls its ‘Golden Quarter’.

“However, there are signs of margin pressure on the business. An uncharitable takeaway is that B&M doesn’t have a great degree of pricing power, a prized quality right now.

“When your whole model is about offering products at bargain prices, you probably have to absorb some of the extra cost so the brand’s reputation for value isn’t undermined.

“There are also signs that B&M has been caught out by unpredictable weather and left with stock which it has had to sell at big markdowns.”

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