Markets stabilise after sell-off, Dr Martens rebounds on cost saving plan, Auto Trader motors ahead on results and Nightcap walks away from Revolution Bars takeover

“European markets dug their heels in and tried to stop the declines that dominated yesterday’s headlines. The FTSE 100 was firm, the IBEX 35 nudged ahead 0.7% and the Dax dipped 0.2%. Stability is welcome, but pre-market indicative prices point to another bad day on Wall Street so the jury is still out whether today is going to end up being another difficult session for equities or not,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“Auto Trader motored ahead on publication of its full-year results. An upbeat tone from the platform operator put a rocket under the share price and took it to a new record high.

“Thursdays have a habit of making investors scratch their heads as to why certain stocks fall on this day of the week. The answer usually lies in them trading without the right to their next dividend, with Thursdays typically being ‘ex-dividend’ day. That explains why Coca-Cola HBC, Centrica, Marks & Spencer and Severn Trent were all weak today.”

Dr Martens

“A month is a long time in the chaotic world of Dr Martens so the fact it only updated on trading in April wouldn’t have ruled out the company shocking the market again with its full-year results today. After all, the problems in the US looked to have gone from bad to worse in the past year.

“It’s therefore reassuring to see from the results that the situation hasn’t deteriorated, hence the relief rally in the share price.

“The company has already thrown everything it can into the kitchen sink and laid bare its gloomy expectations for the year. It’s fair to say that investors weren’t expecting much from Dr Martens in the near-term. To now chuck a £20 million to £25 million cost savings target into the mix feels like the boot maker kept a bit of good news up its sleeve for the results.

“Markets love a good cost cutting spree, even if that might massage near-term earnings at the detriment of long-term benefits to the company. That won’t be Kenny Wilson’s problem as he’s leaving as CEO later this financial year.

“Under the circumstances of Dr Martens attempting to break the record for the most amount of profit warnings for a listed company, it’s surprising to see it continue to pay dividends. It’s only natural to pause the shareholder reward when profits are falling, net debt is rising, trading is volatile and ongoing investment is needed in the business. Perhaps Dr Martens took the view that without the dividend, shareholders would have nothing to cling on for.

“What’s certain is that Dr Martens looks like a ripe takeover target. One of the classic scenarios for takeovers is when a company is down on its knees, it’s going through a leadership transition and there is a major shareholder who has been hanging around for longer than expected. That’s Dr Martens all over.

“Permira still owns 38.46% of the business despite selling some of its holding at IPO. A decent bid premium from an opportunistic bidder could persuade the private equity group to support any offer that comes along.”

Revolution Bars / Nightcap

“Putting two weak things together doesn’t make a strong entity – it merely doubles the problem. That was the situation when Nightcap tried to buy Revolution Bars, a deal which has now collapsed after pushback from the latter.

“Both companies are experiencing difficult trading caused by a mixture of consumers struggling in a higher interest rate environment and younger people frequenting late-night bars less often because many aren’t interested in guzzling endless pints of beer or loading up on cocktails.

“The deal looked doomed from the start because Revolution Bars was already sorting out emergency fundraising to keep the lights on and the Nightcap offer would have scuppered that lifeline.”

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