Markets hold firm, Just Eat rebounds, Currys’ UK stores do better than expected and WH Smith boosted by returning passengers

“After a strong start to the year for UK stocks amid better-than-expected corporate results from retailers and signs of falling inflation, the FTSE 100 has taken a breather over the past few days,” says Russ Mould, Investment Director at AJ Bell.

“Importantly for investors, the FTSE hasn’t given up the year-to-date gains, merely staying firm, with investors waiting for the next nuggets of information on inflation and interest rate expectations before plotting their next move.

“It’s a similar situation in the US where the S&P 500 enjoyed a jump in the first two weeks of the year and has now lost momentum.

“Plenty of big-name companies on the US stock market will report earnings over the next few weeks and a lot of investors may want to see if they meet, exceed or miss expectations before shifting their portfolios.

“Given the difficult backdrop, there is fear among some parts of the institutional investment market that US earnings forecasts might still be too high for 2023 and that stocks across the pond might not be able to sustain their current strength.

“Figures from Procter & Gamble on Thursday, Schlumberger on Friday, Microsoft and Johnson & Johnson next Tuesday, and Tesla and ASML next Wednesday will certainly be ones to watch as their fortunes could have a major influence on market sentiment.”

Just Eat Takeaway

“For years, food delivery companies have focused on gaining scale in what’s become a highly competitive market. That’s fine if they are prepared to stomach losses during their land grab exercise but at some point, the focus must shift to making a profit, and that’s the situation with Just Eat Takeaway.

“It has been streamlining its business, with the results now shining through. A move from a loss-making position to positive earnings has come in the nick of time as the cost-of-living crisis has resulted in a decline in order volumes.

“Just Eat has made mistakes along the way, such as spending too much money buying Grubhub, only to put it up for sale soon afterwards. It also had to battle with an activist investor who criticised the company’s leadership decisions. A post-pandemic hangover weighed on sentiment and the shares tumbled.

“Now it’s on the comeback trail, with the share price having doubled in price since October 2022. The market seems to like its sharpened strategy but there is no denying the difficult backdrop for the business.

“A recession could cause people to scale back spending further, meaning the weekend takeaway treat could be downgraded to only once or twice a month. That would be bad news for the network of drivers waiting to deliver food to people’s homes.

“It’s also the worst time to be selling a business like Grubhub, so don’t expect a blockbuster deal for that asset this year.”

Currys

“The frustration for investors in Currys is that a festive surge in the UK business is only enough to allow expectations to stand still given the effective power failure in its foreign business.

“Currys’ overseas operations have largely been in the background until recently, doing quite nicely from an affluent customer base across the Scandinavian region.

“Competitors selling off excess stock at a discount, which in turn hit volumes and margins for Currys, was supposed to be a short-term issue but it appears to be having a longer lasting and deeper impact than previously thought.

“A remaining problem facing Currys in the UK is a lot of spend was pulled forward during the pandemic when there was a big incentive to upgrade consumer electronics in the home either for work or recreation purposes.

“Other drivers exist for the business – high energy costs are pushing people to buy newer, more efficient domestic appliances and the fact hybrid working is here to stay could act as a further catalyst for demand for better laptops and home printers.

“A record proportion of customers using store credit to purchase items is a concern given the risk of people being unable to stay on top of their debts in a recession.”

WH Smith

“WH Smith is slowly returning to its usual pattern of trading before the pandemic and that’s largely good news for shareholders.

“The return of travellers to stations and airports has helped provide the captive audience for the company’s outlets selling stationery, electronics goods, snacks and drinks.

“People being more willing to jet off on holiday has led to busier airports and the company’s competitive position has arguably been strengthened as rival operators proved less durable through Covid. Though the fine print in these latest figures suggest rail strikes have impacted on WH Smith’s sales in this part of the operation.

“For years the UK high street operation has been something of an afterthought, run as efficiently as possible with a firm control on costs. This may see WH Smith stores regularly rank near the bottom in customer surveys, but the business has generated useful cash flow to help with the running of the business and investment in the faster growing travel operation.

“At some point a debate over the role of the high street arm in the wider group may start to heat up and investors may look for a sale or spin-off of a business which has very different growth prospects.”

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