China worries return, supermarkets dragged lower by negative commentary, Enquest profit (but not cash) wiped out and Ashtead shares hit by pockets of bad news

“After yesterday’s rally fizzled out through the course of the day, the FTSE 100 was on the back foot on Tuesday,” says AJ Bell Investment Director Russ Mould.

“Nagging worries about the Chinese economy are a big contributing factor to the change in mood – the latest PMI reading from the services sector painting a shocking picture. Undoubtedly expectations for a Chinese economic recovery following the removal of zero-Covid measures got way ahead of themselves, but the manner in which things have panned out is probably worse than even most of the sceptics would have predicted.

“With no direction provided from the US, where Wall Street was closed for the Labor Day public holiday, it’s no surprise European stocks have drifted lower.

“Negative broker comment on the supermarkets helped drag them down although the hypothesis behind the downgrades contains a silver lining for shoppers, namely food price inflation is seen as having peaked.”

Enquest

“Enquest became the latest North Sea firm to report a loss thanks to windfall taxes – though like its peers the small print reveals the company still generated a healthy amount of cash flow, albeit significantly lower year-on-year.

“Treatment of tax is an accounting issue and it definitely suits UK oil and gas firms to accentuate the impact of the new levies they face – it is through their decisions to shelve and pull investment that they provide a credible signal of disquiet.

“Enquest’s problems do not just relate to a higher tax burden, production dipped appreciably compared with the same period in 2022 thanks to operational issues.”

Ashtead

“With Ashtead having a long history of doing well, investors are naturally going to expect a superior performance every single quarter. When expectations are elevated, the construction equipment provider will ultimately disappoint the market unless everything is firing on all cylinders. That’s exactly what we have seen following its latest results, which contain pockets of bad news.

“The impact of rising interest rates is starting to bite. Adjusted pre-tax profit ‘only’ grew by 11% in its first quarter, with Ashtead saying the lower rate of growth was down to borrowing more money and having a higher cost of servicing those debts.

“Ashtead normally benefits from the vibrant TV and film industry in Canada, renting equipment for productions that can go on for weeks or months. The writers’ and actors’ strikes have therefore been problematic for its business as productions have been shut down and earnings visibility is now uncertain.

“Furthermore, the UK operations continue to be weak. While they are only a tiny contributor to group profit, the fact it can’t seem to lift them out of a rut has led some people to suggest that Ashtead may be losing its magic touch. Margins are falling, higher rental rates haven’t been enough to offset inflation on its cost base, and it hasn’t got a repeat of the lucrative work from the Department of Health which helped its earnings last year.

“Despite the pockets of bad news, Ashtead still delivered a record performance overall, with the type of revenue and profit growth that most companies can only dream about.”

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