93% of FTSE 100 in positive territory, another UK IPO, supermarkets battle bad weather, Whitbread wades through mud and Ashtead disappoints

“European markets enjoyed a strong start to Tuesday, with the FTSE 100 the biggest gainer among the continent’s key equity indices,” says Russ Mould, Investment Director at AJ Bell.

“The UK index jumped 0.5% to 8,185, led by banking, mining and energy sector shares. Ninety-three stocks out of 100 were in positive territory which is an encouraging sign. Broad gains imply that investors are in a risk-on mood and are not simply hiding in one part of the market.

“The Great British Takeover movement continues to take new twists and turns. XP Power was subject to bid interest last month but there is no longer any prospect of a deal getting over the line. US-listed Advanced Energy made a move in May but says it hasn’t been able to engage with XP and so it couldn’t do proper due diligence, hence walking away. XP responded by saying it hasn’t heard from Advanced Energy since the initial approach. Whatever the real reason, it’s clear this takeover deal is toast, hence why XP’s shares have slumped on the news.

“A week after Raspberry Pi enjoyed a stellar start to life as a listed company, the UK IPO machine has whirred back into action. The latest company to join the market is wound care group AOTI which has listed at 132p per share. The prospect of investing in a foot ulcer expert is clearly not as glamourous as a profitable maker of computer kits, hence the share price reaction is somewhat muted. AOTI moved 3% higher to 135.5p which is still positive for the reputation of the UK market, particularly as most investors have yet to familiarise themselves with the business.”

Supermarkets

“The sixth wettest spring on record has given the supermarkets a soaking. Take-home grocery sales increased by just 1% in the four weeks to 9 June, according to new data from Kantar. The bad weather has also led to the average shopper visiting a supermarket less often.

“Quite a few seasonal products have sat collecting dust on the shelves such as sun cream, while fresh soup has been a surprise hit as consumers look to warm themselves up.

“Despite this patchy backdrop, there have been clear winners and losers. Tesco, Sainsbury’s and Ocado grabbed market share from rivals, hence why their share prices have jumped on the news. Asda and Co-op were the biggest losers as they struggled to compete against their peers.

“Asda has traditionally pitched itself at the value end of the market but this has become a crowded space. It is losing out to German discounters Aldi and Lidl in one corner and some of the big traditional players in the other corner including Sainsbury’s and Marks & Spencer, both of whom are pushing hard on the value side of things.

“Co-op is chasing the convenience part of the market but again, competition is fierce and its pricing is perhaps too high to make it the supermarket of choice.”

Whitbread

“Whitbread’s first quarter results to the end of May are not outstanding. While the share price perked up on the figures, this is only a small bounce from what’s been a downward trend for the stock for most of the year. It’s easy to see why the market has been worried – miserable weather dampened appetite for a last-minute weekend away.

“The latest update implies Whitbread is wading through mud in the UK with like-for-like sales for accommodation and food and drink both in decline. Given the circumstances, Whitbread might view this performance as resilient as the rate of UK sales decline is only marginal. However, it does put more pressure on the business to have a bumper summer if it wants the first-half results to shine.

“German operations are in a better shape, albeit this is a much smaller part of the business versus the UK. Acting as a tailwind for Whitbread for its second quarter is the Euro 2024 football tournament which provides the opportunity to fill its rooms and potentially charge more.

“It helps to have Premier Inn hotels in the same locations as some of the matches including Berlin, Frankfurt, Munich and Stuttgart. However, what it lacks is the same kind of scale as its UK operations. It’s all well and good having a major event to drive custom, but the opportunity to profit is restricted by only having a handful of hotels per major city in Germany.”

Ashtead

“When a company has already reduced guidance it is not a great look when it doesn’t clear that lower bar – almost like a high jump competition running in reverse.

“That’s the fate which has befallen equipment hire firm Ashtead as rental revenue growth came in below rebased expectations.

“It’s not the most auspicious way to prepare the way for a mooted move in its primary listing to the US – the market where it does the lion’s share of its business. Notably, Ashtead already trades at a premium to its main US listed counterpart United Rentals so the prospects of a valuation boost from such a move might be limited.

“Guidance is also weak, although a dose of conservatism makes sense after the recent disappointments served up by the company.

“Despite the softer performance, Ashtead has still grown its annual dividend for yet another consecutive year. However, a swelling net debt pile and the rising costs associated with it could compromise its ability or appetite to keep hiking the payout in the longer term.

“The company saw notable pressure on free cash flow as it put more into capital expenditure and M&A, even if these investments for future growth would likely be welcomed by long-term shareholders.

“The company has confidence in its latest strategic growth plan and still sees big growth drivers in North America but investors may not quite share that confidence right now.”

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