European markets press ahead, investors fret over Disney subscriber dip, ITV hit by advertising slump and Rolls-Royce falls

“Yesterday’s news that US inflation eased slightly triggered a mixed reaction on Wall Street, with the S&P 500 rising 0.2% and the Nasdaq falling 0.6%. However, investors were in a brighter mood across Europe on Thursday with all of the major indices moving higher,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 advanced 0.5% to 7,779, propped up by pharmaceuticals, consumer goods and some financials. All eyes now switch to the Bank of England which will announce its latest interest rate decision at midday. A 0.25 percentage point increase to 4.5% is widely expected, putting the country’s base rate at its highest level since 2008.

“Inflation is proving stickier than hoped, pay growth is rising faster than previously expected and the economy is perhaps in a better shape than many thought it would be six months ago, all giving the Bank of England reason to keep pushing up rates.

“While consumer spending has been more robust that one might expect, given the circumstances, the more the cost of borrowing goes up, the greater the chance for consumer spending to weaken. The Bank of England will be acutely aware of the risks of pushing up rates, but the signals so far suggest it will continue this path in the near-term in the fight against inflation.

“Vodafone’s announcement of a closer working relationship with Emirates Telecommunications – also known as e& – didn’t move the share price, but it certainly won’t go unnoticed by fans of the telecoms sector.

“Emirates has been steadily raising its stake in Vodafone and now owns 14.61%. An agreement is in place for Emirates not to take that stake beyond 24.99% but one has to speculate that greater collaboration between the two groups might ultimately lead to a takeover of Vodafone. Its share price has been in the doldrums for years, so being taken private might be the best outcome for long-suffering shareholders.”

Disney

“The market reaction to Disney’s latest results was somewhat of a surprise, with the shares falling nearly 5% in after-hours trading.

“One of the biggest gripes investors have had with the company is the fact its Disney+ streaming platform has been losing large amounts of money. News that the platform reduced its operating losses from $1.1 billion to $659 million quarter-on-quarter should have been seen as significant progress towards its goal of making Disney+ profitable. However, the market seems to have been fixated by the 4 million reduction in subscriber numbers.

“Given that most of the subscriber exits can be attributed to showing fewer Indian cricket matches, it hardly seems to be a disaster as it still has more than 231 million subscribers across its three platforms which includes ESPN+ and Hulu.

“The average monthly revenue per paid subscriber has increased by 13% across the Disney+ platform and there will always be some customers who don’t want to pay more for the service – the trick is keeping as many as possible and then having the right content to lure more people in.

“A new advertising-led subscription tier will be launched in Europe by the end of 2023 as a way of attracting more customers, but Disney did warn that prices for the advertising-free tier will go up again. That’s a bold move as it risks advertising-free tier customers downgrading their package to the cheaper tier – although early learnings from Netflix’s new cut-price advertising-led tier would suggest fewer people are switching packages than one might expect.”

ITV

“TV advertising faces both a structural challenge, as the audience for linear television declines, and a cyclical challenge as companies trim their advertising spend thanks to an uncertain economic outlook.

“This was reflected in free-to-air broadcaster ITV’s first quarter trading update which, not unexpectedly, showed a big decline in advertising revenue and signalled a weak showing on this front in the current quarter too.

“Advertising spend on its digital platforms is proving more resilient but not sufficiently so that it can make up for the drop off elsewhere.

“At least its ITVX platform, which created a real stink with shareholders when it was unveiled just over a year ago, seems to be performing well.

“The production business, seen for several years as a route to reducing ITV’s reliance on volatile advertising spend, is growing at a decent lick. However, the company is struggling to pass on rising production costs.

“In the recent past there was real clamour for content as streaming platforms engaged in a battle royale to claim subscribers. Now, however, media firms are striving to be more parsimonious as investors look for a greater measure of financial discipline.”

Rolls-Royce

“Tough talk which suggested he got the seriousness of the challenge facing the company and a decent first set of numbers took new Rolls-Royce CEO Tufan Erginbilgic a long way with the market.

“However, today’s trading update saw the first sign of investors taking a tougher line.

“There was nothing to really frighten the horses, trading is in line and the company’s key aerospace business is mirroring the recovery in the wider aviation sector to edge back towards pre-pandemic levels.

“A fall in the share price may just have represented some profit taking after an exceptionally strong run for the stock, but there were some less than positive hints in the statement.

“Perhaps most significantly there was nothing on the company’s New Markets business – which encompasses its investments in areas like small modular reactors (seen as a cheaper and quicker way of developing nuclear power) and electrical aviation.

“On this front, recent news the development of small modular reactors in the UK will be put out to public tender was a blow for Rolls. Its participation in this process was seen as a potential slam dunk but now international rivals could swoop in and take a piece of the action.

“Erginbilgic has made a good start in his transformation of Rolls but he still has plenty to do and he will need to demonstrate progress when the group reports its first-half results in August and, again, at an expected update on the turnaround programme later this year.”

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