Lingering bank fears drag the FTSE 100 lower, Wetherspoons’ earnings still down on pre-pandemic and TUI raises cash for balance sheet fix

“A see-saw session on Wall Street overnight spoke to an edgy market mood and the FTSE 100 started the day firmly on the back foot on Friday,” says AJ Bell Investment Director Russ Mould.

“Barclays topped the losers’ list, reflecting the tricky position for the banks, with some European shares in the sector chalking up big losses on lingering fears of contagion and the threat of regulatory intervention. It is difficult to see a path through the current turmoil around inflation, rates, geopolitical tensions and the recent banking crisis which doesn’t involve some pain.

“At best there is a good deal more uncertainty than there was a month ago and if there’s one thing which markets cannot stand it is uncertainty. We may be close to the end of the rate hiking cycle, certainly the Federal Reserve hinted as much earlier this week, but we are certainly not out of the woods yet.

“UK retail sales topped expectations in February as they rose from January’s lows, though they were still weaker year-on-year, and despite some improvement consumer confidence could still be characterised as fragile at best.

“European PMI data shows a big divergence between the services and manufacturing sector. It could be the latter is a canary in the coal mine for a more pronounced economic slowdown.

“The next big economic announcement looks to be the PCE data in the US a week today – this is the Fed’s preferred measure of inflation and if it comes in higher than forecast it could lead to a sudden about-turn on the Fed’s recent shift in tone.”

Wetherspoons

“Three years since the world was put into lockdown and Covid caused significant economic and societal disruption, Wetherspoons is still dreaming of a profitable recovery.

“Pre-tax profit for the year to 29 January 2023 was down more than 90% on 2019 levels as inflation took the biggest bite imaginable.

“Wetherspoons has always been a low margin business, preferring to give customers good value for money and keep things as cheap as possible. Its model is based on achieving high sales volumes so when costs shoot up, there is often only pennies left on the table once accounting for its outgoings.

“If you go into its city centre pubs today, most will be busy with people having a good time. Sadly, Wetherspoons is only making a fraction of what it was pre-Covid.

“So where does it go from here? It’s a case of waiting for some of the headwinds to subside. Its prices are low enough to be able to push through some further increases if it needs to, and the company continues to put pockets of pubs up for sale to streamline the estate and bring in some extra cash. Despite the pressure on earnings, it continues to invest in its estate and snap up the odd freehold when opportunities arise.

“Wetherspoons has been through plenty of ups and downs during its existence and always seems to be able to survive intact. Founder Tim Martin certainly isn’t afraid of having a grumble, but the company knows what the customer wants and is able to deliver time and time again.”

TUI

“A big discounted fundraise at TUI is hurting the share price in the short term but in the longer term it may be the route to a more meaningful recovery for the travel operator.

“Burdened with debts accrued during the pandemic, TUI has been constrained in its ability to invest for growth as the travel sector recovers. A brief update on trading suggested continuing momentum in bookings but far too much of the company’s cash is currently disappearing in interest payments.

“The question is whether the money raised will be sufficient. Shareholders may stomach the dilution once but if TUI is forced to come back with its begging bowl again before long it may receive short shrift.”

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