Centrica calls profit at top end of expectations and Ashtead's record results

“The FTSE 100 was a touch higher but largely treading water ahead of US inflation numbers later on,” says AJ Bell investment director Russ Mould.

“These will offer a clue into the thinking of the Federal Reserve ahead of its meeting to decide interest rates tomorrow. A higher-than-expected number could hit market sentiment as it might suggest further US rate hikes are necessary.

“Compared with the Bank of England though, the Fed has a somewhat easier task. UK wage figures surprised on the upside to suggest inflation could be more persistent, which has driven gilt yields higher.

“We could be looking at higher rates for longer, with all the negative implications that has for the housing market and consumer spending. In such a scenario, the risks of a UK recession now have to be significantly higher.

“Admiral led the list of losers in the London market due to negative broker comment and real estate stocks were also pressured thanks to the shift in UK rate expectations.

“This was balanced out by a strong showing from the miners which benefited from a cut to rates in China as the country looks to revive a flagging post-Covid recovery.”

Centrica

“The owner of British Gas is doing little to endear itself to the UK’s hard-pressed households, even if shareholders will be pleased, as it guides for profit at the top end of expectations. With CEO Chris O’Shea in line for a bumper pay packet, the company is starting to resemble a pantomime villain.

“The optics are particularly uncomfortable given the driver of its strong performance is the retail-facing business where it is benefiting from regulatory changes which allow it to reclaim losses from selling at capped prices.

“Unlike some utility suppliers, Centrica has been spared much pain during the energy crisis because it benefited from its wholesale business.

“The company has done some things well during the period – the performance of its energy-producing assets has been good and this has made up for the easing of gas and electricity prices this year.

“Before 2022 the British Gas operation saw significant churn amid strong competition, yet much of that competition has now exited the market, putting Centrica in an enviable position.

“The question now is whether political and regulatory pressure will intervene to upset the apple cart.”

Ashtead

“Record levels of revenue and profitability are proof that Ashtead’s business model continues to work wonders, benefiting from the structural growth of customers preferring to rent rather than own equipment.

“The company has taken advantage of significant infrastructure spend across the US and this trend looks intact for the foreseeable future.

“However, if one were to pick holes in its results it would probably be declining profit margins in the UK and Canada. Investors are also nervous about a potential dip in demand should the US enter recession, hence why the share price has been volatile this year.

“At some point, Ashtead might decide to offload its UK arm as it continues to be the weak spot. Canada, on the other hand, is more encouraging according to comments by the company. Ashtead sees similarities to its US arm with strong volume growth and improving rental rates.

“Its business model is easy to understand – in good times, open more sites and have more equipment available to rent per depot. In harder times, invest less in expansion and make the most of existing assets. If the US does go into recession, Ashtead will know exactly what to do to protect its business. And it needs to have that playbook ready to open, judging by weakness in US PMI manufacturing data.” 

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