Oil price continues to rise, 888 hit by punter-friendly sporting results, Mitchells & Butlers moves higher and Zoo Digital still feeling pain from Hollywood

“Another leg up in oil prices has added to the market worries about sticky inflation, thereby stoking fears that interest rates will stay higher for longer. Brent Crude moved higher to settle around the $95 per barrel mark and WTI was close behind after new data showed a further decline in US stockpiles,” says Russ Mould, Investment Director at AJ Bell.

“The market is worried that supplies of oil are going to be tight and if prices keep going, it is going to cause a real headache for businesses and consumers.

“Asian markets had a choppy session with the Nikkei down 1.5%, the Hang Seng falling 1.4% and the Sensex down 0.5%. However, European shares opened marginally higher on Thursday, helped by the rise in energy prices. Oil producers BP and Shell led the FTSE 100 higher.

“The new boss of Diageo was remarkably chipper despite headwinds making it hard for consumer-facing businesses to have confidence in their near-term earnings potential. Debra Crew said expectations hadn’t changed since last reporting two months ago, which came as a pleasant surprise to investors who might have expected a less upbeat tone amid uncertain economic conditions.

“Another company brushing aside challenging markets was Babcock, which said everything was going well. The market is looking for good news stories and it is refreshing to see companies like Babcock show there are still bright spots among UK shares.”

888

“To some extent bookies are at the mercy of sporting results but this shouldn’t really derail a diversified gambling business like 888 to the degree it seems to have done in the third quarter.

“The William Hill owner’s profit warning also reflects the impact of regulation as it is forced to do more compliance work, slowing down customer acquisition.

“Combined with the warning from Ladbrokes owner Entain earlier this week it’s clear the sector is coming under ever greater regulatory pressure as countries look to reduce the social harm caused by gambling.

“888’s problems go beyond that factor as its takeover of William Hill’s assets in 2021 saddled it with very substantial levels of debt.

“News the one-time directors of GVC (now part of Entain), including its former CEO Kenny Alexander, had taken a stake helped boost a bombed out share price over the summer. Now the really hard work begins and the incoming management team of CEO Per Widerström and CFO Sean Wilkins have a lot to do.”

Mitchells & Butlers

“People may be feeling the pinch but they still need the release of an evening out and All Bar One and Harvester owner Mitchells & Butlers is benefiting as its fourth quarter update demonstrates.

“The appeal of its offering is reflected in its outperformance of the market, suggesting its venues are sufficiently attractive and are in the right locations to pull people in on a regular basis. The company is also able to invest in its estate when smaller and independent rivals may be struggling to do so.

“An increasing share of the revenue growth the company is reporting should flow through to the bottom line as cost pressures start to abate – making for a very happy cocktail for the business.

“The one negative is it is sitting on a sizeable pile of debt, partly as a legacy of the pandemic, and, with the cost of borrowing having gone up sharply, this is likely to constrain its ability to reward shareholders by returning to the dividend list.”

Zoo Digital

“The Hollywood writers’ strike may have drawn to a close, but the impact of disruption to the TV and film industry is still taking its toll on businesses.

“Zoo Digital, which supplies subtitles and dubbing services, saw its share price slump by a third after saying earnings visibility was still limited.

“It had been banking on order levels getting back to normal from October but says that now looks unlikely.

“Hollywood studios will be itching to get back to work and churn out that prized content, so it might simply be a short-term rocky period for Zoo Digital. Indeed, the fact it will continue to invest in dubbing capabilities in hope of a rapid rebound in work shows the board is thinking about the long-term prize, not panicking because of short-term problems.”

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