UK inflation reading weighs on domestic stocks, BYD in race to overtake Tesla, Whitbread on a roll and Just Eat muddles on

“Higher than expected UK inflation data has put the market in a spin, sending shares in housebuilders, airlines, banks and utilities into a downward trend. Sticky inflation strengthens the argument for further interest rate hikes, which in turn adds to pressures for consumers and businesses,” says Russ Mould, Investment Director at AJ Bell.

“Higher rates would pile on the pressure for the property market as the cost of borrowing goes up, explaining why the likes of Barratt Developments, Taylor Wimpey and Howden Joinery were the top three fallers on the FTSE 100. Banks would normally benefit from higher interest rates but the market seems to be worried that further hikes could increase bad debts.

“Mining stocks were also weak despite positive news from China where the economy grew at a faster rate than expected in the third quarter. The 4.9% result was much higher than forecasts for 4.4% growth. However, the key concern is that China’s economy is reliant on endless government stimulus initiatives and the country could struggle to sustain high rates of growth. Naturally that has negative connotations for commodity producers, given how the Asian superpower has historically been a big buyer of metals and minerals.

“Chinese electric vehicle maker BYD continues its race to overtake Tesla in terms of sales units and its latest trading update suggests it remains in top gear. Its shares jumped nearly 5% after saying quarterly profit could double after enjoying decent sales and keeping a lid on costs.”

Whitbread

“Premier Inn is in a sweet spot. For leisure travellers, it is a reliable place to get a room for the night without breaking the bank, while business travellers on a budget are happy to stay in its hotels because they are clean and decent enough quality.

“With growing demand from both these customer segments, Whitbread is cleaning up on multiple fronts. The more people staying in its hotels, the more opportunities it has to make ancillary revenue through food and drink as well as push room rates.

“The solid performance from the UK gives the group a stronger footing to fund expansion in Germany where room rates are a lot lower but there are opportunities to build more hotels. It also gives management the confidence to upgrade UK facilities such as installing new beds and upgrading rooms to ‘Premium Plus’ status where it can charge more for a night’s stay.

“The fact it can also afford to grow dividends and conduct another £300 million share buyback implies the company has confidence in the future.”

Just Eat Takeaway

“A company as established as Just Eat Takeaway shouldn’t be crossing its fingers hoping to be cash flow break-even. That’s the sort of situation you would expect from an immature business that is starting to gain traction selling its products and services, not from a company that was once a member of the prestigious FTSE 100 index.

“It feels like Just Eat is stuck in the mud – always declaring progress but always being held back by some part of its business. North America is the latest problem child for the group.

“During the pandemic people were happy to order in food as there were restrictions on movement which meant they could not go out for a meal when they wanted. Naturally that benefited food delivery platforms like Just Eat – but post-pandemic the sector is finding life a lot tougher.

“Takeaway food can be incredibly expensive and with interest rates and inflation remaining stubbornly high, orders via platforms such as Just Eat are in decline.

“Its share price may have moved higher on the latest trading update yet that’s merely down to upgraded earnings guidance. On a longer-term basis this stock has been as stale as a supermarket Danish pastry, down 89% in value over the past three years.”

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