UK stocks higher on recession-driven rate cut hopes, new twist to motor finance probe, big dividend boost from Centrica, RELX benefits from AI and Jet2 raises guidance

“Confirmation that the UK is in recession has done nothing to knock UK stocks off course. An economy pushing through mud is not new news and if anything, it might encourage the Bank of England to think harder about cutting interest rates to avoid further economic deterioration. That’s certainly how the market views the situation as UK equities ploughed ahead,” says Russ Mould, Investment Director at AJ Bell.

“There were only six fallers on the FTSE 100 and three of those were down to trading without the rights to their next dividend, being BP, Shell and Imperial Brands.

“The pound weakened against the US dollar on the GDP news, which is positive for the wealth of overseas earners on the FTSE 100. The more domestic-facing FTSE 250 also pushed ahead, with AIM-quoted Jet2’s trading update having a positive read-across to Main Market-listed mid-caps EasyJet and Wizz Air.

“The banking sector has a habit of being embroiled in scandals. Just as the dust settles on one scandal, along comes another, and that cycle has been repeating for decades. It looks like we’re on the cusp of a new one and the potential fines and compensation payments could be huge.

“Close Brothers has scrapped its dividend while the FCA investigates potential historic mis-selling of motor finance deals. Lloyds is also a major player in this market and a lot of its investors own the bank’s shares purely for the dividend. Any risk to the shareholder payout could be bad for its share price.”

Centrica

“Centrica is in a difficult situation where the business is doing well but the cost-of-living crisis is still in full flow. Once again it will be sucked into the debate about profits versus principles.

“Hiking the dividend by 33% and ploughing ahead with a £1 billion share buyback programme suggests that shareholders are milking it while some families are struggling.

“Centrica argues it is doing more than any other supplier to support customers in need, as well as paying over £1 billion in tax, creating more than 1,000 new jobs and improving security of supply. At the end of the day, businesses are allowed to make profits and they can decide how to spend that money as they wish.

“The big question is whether Centrica is doing enough to improve customer services and help vulnerable households while also investing in infrastructure to support energy generation. The tone of its results imply progress on all these fronts but naysayers will suggest whatever it does is never enough.”

RELX

“Data analytics firm RELX may feel others are coming somewhat late to the artificial intelligence party. While the theme has hit the mainstream over the past year or so, the company has been investing in this area for years and this groundwork is paying off with demand for AI tools and data crunching seeing appreciable growth over the last 12-month period.

“Its application of generative AI is probably at the most advanced stage in the legal division where its Lexis +AI product is bringing artificial intelligence capabilities to its existing research platform. This can help lawyers digest complex legalese and conduct useful analysis.

“RELX’s products often account for a small chunk of a customers’ total cost base but have a significant impact and are often highly embedded in their processes and strategies. This makes its revenue streams predictable and boosts the quality of its earnings.

“A big plus for the business in recent times is the post-Covid recovery of its exhibitions arm and it is a notable achievement on the company’s part to have revenue growing ahead of pre-pandemic levels.

“The net result of all these strengths is growth a touch ahead of the usual run-rate and the company has felt confident enough to deliver a material boost to the dividend and launch a sizeable share buyback.”

Jet2

“Airline and package holidays business Jet2 was feeling confident enough to nudge its annual profit forecast higher on an encouraging level of forward bookings, but there are a few clouds on the horizon.

“Input costs are going up thanks to items like wages, hotel prices and changes to the EU’s carbon emissions scheme and the company is mindful of the difficult economic backdrop for its customer base.

“Jet2 is still seeing evidence of people prioritising spend on travel as they find it hard to give up on a week in the sun.

“Where Jet2 has an advantage is in its strong reputation for customer service. If you’re having to spend more money on your holiday you want to be even more confident that you’re going to be looked after both on your way to the destination and when you get there.

“Jet2 demonstrated good corporate behaviour during the pandemic – refunding deposits in a timely fashion and being proactive to cancel flights and holidays when they knew they couldn’t be fulfilled. It is reaping the rewards now and this affords the company an element of pricing power. Strong demand for higher margin package holiday bookings is a useful trend for the company.”

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