FTSE 100 lower as impact of Powell comments rumble on, Aviva shines, Domino’s set for a tough year, WANdisco shock over fraud probe and Harbour Energy profit (but not cash) wiped out by windfall tax

“The FTSE 100 took another step back on Thursday as a second day of testimony in front of Washington lawmakers by Federal Reserve chair Jerome Powell largely stuck to the hawkish tone of the previous day,” says AJ Bell Investment Director Russ Mould.

“While Powell softened things a little by saying nothing is decided yet, the clear message is future rate decisions will be dependent on the data and for now that seems to be tilting things more towards a 50-basis point rather than 25 basis point rate rise later this month.

“This would shatter the market’s comfortable illusion at the start of the year that rates were about to pivot and a soft landing for the US economy could be engineered.

“A bright spot on the UK market was offered by insurer Aviva, where current CEO Amanda Blanc has done an enviable job.

“Streamlining operations and selling off underperforming businesses is a well-worn strategy, but one Blanc has executed well and that’s evident in the 2022 numbers which show a big increase in profit and dividends accompanied by a big share buyback.”

Domino’s Pizza

“The cost-of-living crisis has forced Domino’s Pizza to rethink how it does business. A £20 pizza is now off the menu for a lot of people, hence why it has been offering cheaper-priced deals. That puts pressure on the business to get customers to order more frequently, which is a tough ask in the current economic environment.

“Also eating into profits is ongoing investment into upgrading technology systems. Domino’s is eager for more customers to install its app on their phone, saying these types of users typically spend more with the business than those who only order via the website.

“With competition fierce and consumers watching their pennies, Domino’s could have a very difficult year ahead. The market seems to agree, given how the shares have been falling over the past few months.”

Wandisco

“WANdisco’s credibility has been shattered after uncovering a potential fraud. Over the past six months it has been shouting from the rooftops about significant revenue growth thanks to winning lots of contracts. Only three days ago it talked about listing in the US, something that many tech companies do to obtain a higher valuation.

“Now its dreams have gone up in smoke. The idea that someone in the company has potentially been fiddling the books is a nightmare for management and shareholders. To go from aspirations of a US stock market listing to having your shares suspended in less than a week is a total embarrassment.

“What’s concerning is the apparent lack of controls in the company. The idea that a single person has managed to inflate the revenue by significantly more than management now believes it will report goes to show there is something very wrong with how the business is run.

“References to ‘significant going concern issues’ is even more shocking. It suggests the company desperately needs a cash injection to keep going and it’s hard to see who would stump up the readies in light of a potential fraud. A heavily discounted fundraising now seems its only option.”

Harbour Energy

“Taken at face value windfall taxes completely wiped out independent North Sea producer Harbour Energy’s profit for the year but take a closer look and the story is a bit more complicated.

“Effectively the company is putting all the tax implied by the new levy out to 2028 through its books for 2022 – notably Harbour still generated free cash flow of more than $2 billion and managed to halve its net debt while paying out a decent level of dividends.

“This situation is unlikely to engender a great deal of sympathy, particularly for those who are struggling with the cost of heating their homes.

“Whether cynical or not – amplifying what is essentially an accounting decision helps make Harbour’s case that UK oil and gas companies are being squeezed too hard.

“That doesn’t mean its argument should not be taken seriously. Tax on oil and gas in the UK is complex and has been subject to lots of changes over the years. This does make it difficult for companies to commit to long-term investment plans. Harbour is backing up its strong words with action, reducing its headcount in the UK and announcing plans to reduce domestic activity and ramp up overseas operations.

“Given businesses like Harbour Energy have the option of investing elsewhere, there is a risk of the UK’s energy security being undermined by understandable moves to tax profit which was indisputably boosted by the knock-on effects of the invasion of Ukraine.”

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