BP reportedly waters down green commitments, Mixed picture for retail as H&M and Halfords struggle but Moonpig and Watches of Switzerland bounce back, Currys underwhelms

“The FTSE 100 struggled to find direction as strength in energy and banking stocks was offset by weakness in pharmaceuticals, tobacco and mining,”

“This implies that investors might be tinkering at the edges with portfolios but taking a cautious approach ahead of Friday’s US inflation data which could play a crucial role in deciding the next steps for the Federal Reserve’s monetary policy.

“The retail sector was in the spotlight after a spate of updates from physical and digital shopkeepers, good and bad. H&M and Halfords were knocked sideways by consumers being put off spending either because of bad weather or financial pressures. Moonpig saw its shares soar after saying that profits had greatly improved over the past financial year, with management upbeat about performance and reporting the benefits of using AI in the business.

“Watches of Switzerland was in demand with investors after saying the UK market was starting to stabilise. The company has been through a difficult period as growth moderated and cracks appeared in the luxury goods sector despite people previously thinking wealthier individuals would be immune to the cost-of-living crisis. The absence of any more bad news was good enough to prompt a reassessment of the business by the market, hence a strong share price reaction to the results.

“Indivior has completed its shift to the US market as it becomes the latest in a growing number of UK-listed firms to switch their primary listing to the States. While it maintains a listing on the UK stock market, it no longer qualifies for inclusion in the FTSE indices.”

BP

“Reports suggest BP’s chief executive Murray Auchincloss is set to water down the company’s energy transition further and put a freeze on hiring.

“Having replaced Bernard Looney, who unveiled the company’s net zero strategy to some fanfare at the start of 2020, Auchincloss had some space to make a more aggressive move in this direction.

“Poor recent share price performance had also put him under some pressure to take radical action with a diminished BP at risk of falling prey to a larger predator.

“The motivation for taking the route of a slower energy transition might be to secure a better valuation from the market, more in line with US peers which have not made the same kind of environmental commitments. In doing so, Auchincloss is following the path forged by his counterpart at Shell, Wael Sawan.

“These decisions could go down well with investors in the short term but they could store up longer-term problems for the business.

“By walking back its environmental pledges, BP risks the ire of campaigners, the wider public and, more seriously, politicians and regulators.

“The energy industry has been plagued in the past by problems relating to its cyclical nature, with professionals in this space facing waves of redundancies during fallow periods. This has resulted in an aged workforce and has seen expertise leave the sector.

“A hiring freeze now could make it more difficult to fill jobs when BP needs to in the future and, having muddied any green credentials, BP may struggle to attract new, younger talent given this demographic tends to be more concerned about the impact of climate change.”

H&M

“June was a catastrophe for H&M thanks to poor weather keeping shoppers at home and last year’s comparative figures being tough to beat. Efforts by the retailer to communicate an improvement in trading towards the end of the month have fallen on deaf ears judging by the 13% slump in the share price.

“What’s spooked investors beyond recent trading is gloomier guidance for the rest of the year. H&M was in turnaround mode after going through a bad patch, but now it seems the journey back up the hill is going to be harder. Cost pressures and unfavourable foreign exchange rates have become a bugbear and that makes it harder to achieve its 10% operating margin goal in the near-term.

“Fashion retail is a highly competitive market and, while H&M is one the best-known brands on the high street and online, it can never take the foot off the pedal and rely on passing trade. There need to be constant improvements to how the business is run and products on the shelves that people want to buy.

“Being a retailer is hard work and H&M is certainly not sitting on its hands. More investment is going into improving stores and the digital experience; it is finding ways to improve product availability across both channels; and it is speeding up the pace of getting new designs into consumers’ hands. These are the right things to do and H&M will be looking at the longer-term prize, not panicking because of short-term setbacks.

Halfords

“Halfords risked being the car crash stock of the day on the UK market as its retail arm has gone from bad to worse. However, an initial share price sell-off was short-lived and the stock recovered all of its losses in early trading to record a 5% gain.

“Profits have gone into reverse as the company struggles to get consumers to buy non-essential things. People are getting what they need to keep their cars on the road, but they’re reluctant to spend money on non-essentials like bikes and upgrading tyres. Add company cost pressures on top and you’ve got a business in a pickle.

“It feels like we’re at the point where something has to change with Halfords. Its retail model clearly needs to evolve, otherwise it is going to be a drag on the group indefinitely.

“Retail woes aren’t a new thing for the company and it would be wrong to blame the cost-of-living crisis when its problems date back to pre-pandemic days. Halfords needs a complete overhaul and it is ripe for an activist investor to come along and make demands. The shares are trading at a two-year low and 75% below their peak in 2015. It’s clear that the auto services arm is the future of the business and Halfords already has a strategy in place to make this bigger.

“The opportunity lies in speeding up this transition and working out how to fix the retail side, which might simply be to scale back the cycling bit with a smaller range of products and focus more on core motoring items.”

Currys

“After batting off takeover interest earlier this year Currys has enjoyed a strong run, with its shares moving comfortably ahead of the 67p bid which was on the table from US hedge fund Elliott in February.

“This context helps to explain the negative reaction to the company’s full year results with investors perhaps disappointed at the lack of any further upgrades to guidance. Otherwise, this looked a solid set of numbers, with the Nordics business, a problem child of late, firmly back on track.

“Currys has joined the bandwagon to hype up opportunities with AI. The company is expecting to do well with Copilot+ PCs – pitched as the fastest and most intelligent Windows PCs on the market.

“More broadly, Currys is looking to stand out as one of the few specialist consumer electronics retailers still with a physical high street presence. This strategy is centred on helping customers navigate what is an increasingly complicated world of household tech.

“It offers services through the cycle of a product, from finance to recycling once a device has reached the end of its useful life. By doing so it hopes to build trust and also nab recurring revenue which will increase the quality and predictability of its revenue and earnings streams.

“The company also hopes to branch out into sales to small and medium-sized enterprises which only represent a small fraction of its current business.

“Encouragingly, the company plans to put an improved balance sheet to work by investing in its website and stores – this could pay dividends in the long run.

“The company does face risks, including competition from non-specialists and any future weakening in the consumer backdrop, but it looks in a much better place than it did a year ago.”

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