Markets down, Jet2 doing better than expected, CVS and Pets at Home hit by CMA review into vets market and Direct Line bolsters finances with disposal

“Will they, won’t they? The guessing game regarding the next steps for central banks lifting interest rates is giving investors a headache,” says Russ Mould, Investment Director at AJ Bell.

“The US markets slipped yesterday following stronger than expected services sector data and a strengthening oil price which implies inflation will remain sticky, thus suggesting the Fed will keep lifting rates.

“Each day brings a new take on the matter – one minute people are saying that rates are near the peak of the cycle as wage growth slows and pockets of inflation ease, the next we have signs that the economy is staying strong and input cost pressures remain.

“It also doesn’t help there are divergent fortunes geographically. For example, comments by the Bank of England governor called into question the need for further rate hikes in the UK. That triggered a sell-off in the pound, putting it at a three-month low versus the dollar.

“All these moving parts would suggest that investors are struggling to know how to position their portfolios.

“All the major markets in Europe were in the red while most of Asia was weak on Thursday. The FTSE 100 slipped 0.5% to 7,389 with basic materials, real estate and financials the worst performers. There were a mere 24 risers on the index and only five delivered share price gains in excess of 1%, led by Melrose which said it was trading ahead of expectations.”

Jet2

“Decent demand for last-minute summer holidays and strong Winter bookings means Jet2 is on track to beat market expectations for its full-year profit. That’s all the more impressive considering the disruption last month from wildfires in prime tourist locations including Greece and air traffic control issues.

“Holidays have become a lot more expensive over the past year so there has been some nervousness that companies like Jet2 would find it harder going. So far, those fears look overblown.

“Jet2 is pushing hard on its package holidays being the solution for price conscious travellers and the message seems to be resonating with this target market given that the number of bookings per available seat for 2024 summer breaks are ahead of what was achieved for 2023 at this point last year. When you factor in an 11% increase in seat capacity, it shows the public highly prizes their week in the sun, even if it means cutting back elsewhere.”

CVS / Pets at Home

“Being in the pets and vet space has felt like a healthy place to be in recent years. That’s been reflected in strong share prices for the likes of vet group CVS and Pets at Home which has its own veterinary arm within a broader retail and grooming offering.

“Britons love their animal companions and are willing to pay up to keep them healthy and happy.

“News that the competition authorities are looking into the rising costs and potentially anti-competitive practices in the industry has set the cat among the pigeons when it comes to the share prices of CVS and Pets at Home.

“The sell-off seen today could be an overreaction, although the CMA review looks to be wide-ranging. The problem for both businesses is the process is likely to be time-consuming and, with a further update not due until early 2024, it could weigh on both stocks for some time to come.”

Direct Line

“For its first few years as a public company insurer Direct Line enjoyed a charmed life. Even after the shares stalled amid heavy competition in its market it was still seen as a reliable dividend payer.

“It was left badly exposed coming out of the pandemic as the level of motor insurance claims bounced back and, crucially, the cost of those claims spiralled. This culminated in a car crash of a trading update at the start of 2023 which saw the company axe its prized payout.

“The £520 million sale of its brokered commercial lines business to Canada’s RSA, for what Direct Line claims is an attractive price, will help to plug a gap in its financial position.

“The market probably shouldn’t expect a return to the dividend list in the immediate future – news of the disposal accompanied the announcement of a sharp increase in first-half losses – but this sale does at least put the business on a more sustainable footing.”

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