Markets perk up, British American Tobacco CEO suddenly leaves and Currys upgrades profit expectations

“A weekend of sunshine appears to have put investors in a better mood, with the main UK market indices doing their best to start the new week on the front foot. The FTSE 100 advanced 0.2% to 7,771, led by banks, retail and mining,” says Russ Mould, Investment Director at AJ Bell.

“Key economic announcements to watch this week include the UK unemployment rate on Tuesday, which is forecast to stay flat 3.8%. On Friday, the latest GfK consumer confidence index will be published and is expected to show the fourth month in a row of improvement.

“There is still room for last minute wobbles at the end of the week when Federal Reserve chair Jerome Powell holds a public discussion with former chair Ben Bernanke in Washington. Markets will be looking for any nugget of information that could give a hint to the Fed’s next move with interest rates.”

British American Tobacco

“It’s never a good look when a company says its chief executive is leaving with immediate effect, and after only four years in the job. This suggests something is not right in the business.

“The fact British American Tobacco has promoted its finance director to the CEO role provides some comfort that the new leader already knows the business inside out. However, it raises a lot of questions as to why the change has happened.

“Unlike many companies in this situation, we haven’t had any major clues for problems behind closed doors for British American Tobacco. There have been no profit warnings or activist investors calling for change. The only high-profile calls from shareholders have been a request by GQG Partners to move its stock listing from London to the US in the hope of getting a higher valuation.

“Like many of its peers, British American Tobacco has been shifting its business model from traditional cigarettes to alternatives such as vaping as consumer preferences change. Many countries around the world are paying closer attention to health and the environment, meaning tobacco manufacturers need to show they are doing more to evolve.

“A lot of investors have turned their back on the sector due to ESG concerns, which explains why shares in stocks like British American Tobacco are relatively cheap and offer high dividend yields. They’re deeply unloved.

“While these businesses remain highly cash-generative, they are having to find new ways to attract investors and win over sceptics.

“Perhaps British American Tobacco’s board felt that the outgoing CEO Jack Bowles wasn’t doing enough to push the company’s transformation efforts. He is thanked for being the architect of a new strategy, but there is reference to needing someone new to take the business to the next level. Tobacco and vaping are highly competitive markets and it will require some bright thinking to stand out from the crowd.”

Currys

“Today’s profit upgrade raises the question of just how well Currys might be doing if it wasn’t for the previously reliable Nordics business hitting the skids.

“Like an athlete who has found a new level of performance only to find a stone in their shoe, the electronics retailer continues to churn out an impressive performance in the UK and Ireland, belying a difficult backdrop, while continuing to struggle in Scandinavia.

“For a long time, the Nordics arm just quietly did the business for Currys, serving an affluent customer base, but what initially seemed to be a short-term problem of competitors selling off excess stock at a discount has become a lingering issue and prompted the company to change its regional boss.

“Another problem is the benefit from people buying new laptops and other electronic goods during the pandemic has inevitably waned amid pressures on consumer spending.

“This makes the robust trading in the British Isles all the more impressive, albeit sales are still lower than a year ago, and suggests the company may be making some market share gains.

“The debt position is also getting healthier, and if Currys can get its Scandi operations back up to scratch it could win over investors who have turned away from the company in recent weeks.”

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