Central bankers dampen sentiment, B&M shares slide despite upbeat statement, Serco surges on defence and immigration demand and Moonpig announces resilient sales

“The FTSE 100 was on the back foot on Thursday as central bankers used a conference in Portugal to ram home the message that more rate hikes could be coming and rates could stay higher for longer than the market thinks,” says AJ Bell Investment Director Russ Mould.

“The next set of central bank meetings in late July and early August will provide the proof in the pudding and until then markets may continue to hedge their bets.

“Monetary policymakers must balance the need to show their commitment to fighting inflation, while also having some awareness that there will be a lag before their actions take full effect in the economy and not creating so much stress in the financial system that something breaks. It’s not an easy task.

“A few years back it looked like the typical outsourcing model was broken beyond repair – with the collapse of Carillion in 2018 a watershed moment. However, Serco has shown it is still possible to make a good living by offering contracted services to global governments and that’s reflected in today’s latest upgrade to earnings forecasts. Demand for its immigration and defence services, two big pressure points for lots of countries, have helped drive growth.

“Computer games developer TinyBuild’s market cap is becoming increasingly miniscule as it continues to disappoint. After a strong start to life as a public company saw the shares top £3, they now trade at just 15p. The departure of its finance director and the latest profit warning, with recent acquisitions the culprit, will do nothing for market confidence as the company’s cash continues to dwindle. Fundamentally too, its releases just don’t seem to be gaining enough traction with gamers.”

B&M

“B&M is the ultimate play on the cost-of-living crisis, offering a range of goods at cheap prices. Chief executive Alex Russo says the business has ‘strong trading momentum’ which is no wonder when interest rates keep going up

“A lot of people are feeling the pinch of the higher cost of borrowing and are looking for ways to trade down to cheaper items for the things they need in the home. This is not simply a pound store offering, B&M is a place for people to buy things like garden furniture, desks and kettles.

“Argos used to be seen as the go-to place for such items, but it feels like B&M has taken over as the public’s favourite places to buy known brands at cheaper prices. Argos has suffered from its shrinking high street presence while B&M’s expansion has put its stores front of mind for the shopper.

“This should provide long-lasting benefits. Even when the cost-of-living crisis fades away, B&M in theory should be able to keep many of the customers it won during the tougher economic times, particularly if it continues to offer good for value for money.

“Yes, some people will naturally trade back up to more expensive places when the economy is stronger, but the fact the current crisis could last well into 2024 suggests that many shoppers will become so used to visiting B&M that their shopping habits become ingrained.

“So why has the share price fallen 6% on the news? It could be the lack of full-year guidance which implies no upgrades to earnings expectations. The shares have already had a strong run this year, up more than 30%, so perhaps some investors are banking profits while the going is good.”

Moonpig

“Online greetings card seller Moonpig has tried to style itself as a technology company in the past. However, things like using data to predict customer purchasing patterns, tailoring its offering accordingly and prompting customers with reminders are just what consumer-facing businesses should be doing as a matter of course in the 2020s.

“Moonpig seems to be good at what it does, reflected in its market leadership status. This is not a bad market to be in either, as despite a difficult economic backdrop, most people still like to send a card to mark a milestone. That resilience is reflected in its latest set of full-year results which showed some modest growth and reasonably robust margins and cash flow.

“Where Moonpig could find things more difficult is selling extra little gifts alongside its cards at the checkout stage. If households are really watching their pennies, they may decide they can do without a box of chocolates or soft toy on top.

“The idea of offering gift experiences within a card looks like a smart innovation which may appeal to the time-poor trying to stay on top of friends’ and families’ birthdays and other special occasions.

“Moonpig has proved up the idiom ‘when pigs fly’ by singularly failing to get off the ground since its 2021 IPO. To turn things around it needs to reduce its debt and demonstrate it can deliver growth in a difficult market.”

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