Markets retreat on mixed corporate updates from the likes of Flutter and The Works, Arm’s post-IPO disappointment doesn’t bode well and Disney beats expectations amid Peltz pressure

“The market has been flooded with corporate news and to call the results and trading updates a mixed bag is putting it lightly,” says Russ Mould, Investment Director at AJ Bell.

“Plenty of companies are finding they cannot meet market expectations and so we’re seeing some chunky one-day share price declines. That explains why the main indices across Europe found it hard going, including a 29 point drop in the FTSE 100 to 7,372 and the Dax stuck in the mud at 15,226.

“Flutter and B&M topped the FTSE 100 fallers as investors found fault with their latest updates. Financials and energy stocks also acted as a drag on the UK blue chip index.”

Flutter

“Flutter has suffered from the punters cleaning up on sports betting and unfavourable foreign exchange movements, causing it to say non-US earnings would be at the bottom end of previous guidance. That’s gone down like a lead balloon with the market as the shares sank more than 10%.

“The US has been the big opportunity for Flutter for some time, and remains so, but today’s warning is a reminder that this is a bigger beast and if everything is not working in its favour, the consequences can be dire for investors.”

Arm

“One of the worst things a company can do is disappoint on earnings guidance within the first year of listing its shares on a stock exchange. It sends a negative message to the market and creates lingering doubts among investors that the stock is a good investment. UK chip designer Arm has joined the club, guiding for quarterly revenue below market expectations a mere two months after its IPO.

“A cynic might argue this adds fuel to the fire that we’re in a flop era for IPOs. However, Arm has been listed on the market before and was a resounding success for those buying its shares first time around. The key question now is whether Arm still has its magic touch and is simply going through a bad patch, or if it has gone off the boil.

“Companies typically float on the market with a lot of fanfare and promises of big growth in the years to come. Arm priced its shares at the top of the expected $47 to $51 per share range and its shares then popped on listing day to close at $63.59. Since then, they’ve slipped back and based on the after-hours trading following the latest revenue guidance, Arm has now lost all the share price gains it has made since IPO.

“A tough situation, but you have to remember that one quarter’s disappointment might simply be a blip and not indicative of things to come.

“Arm’s growth story is hinged on significant spending across the tech sector in AI, creating a new catalyst for earnings and diversifying income streams behind the historical reliance on smartphones. It’s fair to suggest the AI tailwind should have momentum, which suggests the outlook for Arm is still promising. Investors and analysts just need to have more realistic expectations about the pace of growth.”

Disney

“Disney beat expectations with its latest earnings but the relatively modest gains made in after-hours trading reflects lingering scepticism about returning CEO Bob Iger’s ability to fix up the House of Mouse.

“The company recently celebrated its 100th anniversary and, as its longevity suggests, it has got through tough times in the past.

“Arguably in recent years it has tried to do too much. Historically when it came to content, Disney was all about quality not quantity – it needs to get back to that mindset.

“Iger’s announcement of further cost cutting could be read as an attempt to see off pressure from activist investor Nelson Peltz, who is believed to be angling for a seat on the board.

“He obviously still sees considerable value in the brand but is unhappy with the way the business is being led, with succession plans for Iger being pushed further out.”

B&M

“Despite upgraded guidance on earnings and store roll-out ambitions, discount retailer B&M was out of favour with the market on its latest update.

“A proposition of selling a range of discounted goods should chime with households which are looking to save money, so perhaps there was some disappointment at relatively sluggish like-for-like growth in the first six weeks of its ‘golden quarter’, even if the picture in the last three weeks has been more encouraging.

“An admission that volatile market conditions make forecasting tough may also have been in the minds of investors.”

Astrazeneca

“AstraZeneca continued to show its strong suit in oncology treatments with its third quarter update and this was the key driver behind an increase in profit guidance.

“Alongside these encouraging numbers the company spent $2 billion on an exclusive licence for an oral weight-loss drug candidate, Eccogene.

“While this might be perceived as an attempt to jump on the coat tails of the likes of Novo Nordisk and Eli Lilly in what has become a booming market, AstraZeneca has form for adding strings to its bow – prior to the Covid pandemic it was not considered to have any particular expertise in vaccines, for example.

“The latest update will build confidence the company can sustain its recent momentum and reclaim its position as the largest company on the FTSE 100 from energy giant Shell.”

S4 Capital

“People initially set great store in Martin Sorrell’s position at S4 Capital – amid hope he could repeat the acquisition-led strategy which turned WPP into a global advertising giant before his acrimonious departure.

“That hope is looking increasingly forlorn as S4 warns on profit again. The idea of creating a specialist digital advertising agency from scratch and outpacing rivals with legacy assets was an enticing one. But S4 has proved just as vulnerable, if not more so, to a deterioration in the economic outlook. Marketing spend is one of the first items which gets cut in a downturn.”

The Works

“It’s the Nightmare before Christmas for The Works. The company was meant to be a champion in the cost-of-living crisis, selling cheap products to people who have been watching every penny. The idea of getting a big discount on a toy or book would appeal in such economic conditions. Sadly, its tills aren’t ringing as expected.

“The retailer blames the weather along with the ongoing tough environment for consumers, putting more pressure on the forthcoming festive shopping period to make up for the shortfall in expected earnings.

“There are already suggestions in the industry that shoppers are going to leave their Christmas shopping as late as possible this year, and that’s disastrous for retailers.

“This could result in heavy discounting in the weeks leading up to the big day, putting pressure on profit margins. Indeed, The Works now says it has no choice but to run big promotions and slash prices straight away so as to remain competitive.

“This situation has led The Works to lower its earnings expectations in anticipation of a tough Christmas, hence the share price has collapsed by more than 30%.”

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