FTSE 100 higher following gains in US and Asia, Barratt Developments to build fewer homes, Direct Line succumbs to price comparison move, Travis Perkins hires industry heavyweights and record sales for Wetherspoons

“The FTSE 100 regained some of the ground lost yesterday as a combination of airlines and precious metals miners helped give the market a lift,” says AJ Bell Investment Director Russ Mould.

“This followed gains in Asia and on Wall Street overnight, with Japan’s Nikkei 225 attaining a new record level.

“Testimony from Federal Reserve chair Jerome Powell before the US Senate saw him flag a return to normality in the labour market. While he made no commitment on rate cuts, jobs data is one of the most important influences on the Fed’s decision making because tight labour market conditions and rapidly rising wages can lead to inflation becoming entrenched.

“It’s been a rough journey for airport and railway station concessions operator SSP since the pandemic but today’s update suggests it is making tangible progress. Benefiting from a captive audience, SSP enjoys significant pricing power, but the disrupted recovery in travel and some missteps on the company’s part meant it has not taken full advantage of these inherent strengths. Investors will hope normal service is now resumed.”

Barratt Developments

“Labour may have made a big play of getting Britain building but the industry is not yet responding in kind. Tellingly, Barratt Developments is expecting a further slowdown in completions in the current financial year.

“Its year-end trading update shows completions have already dropped dramatically from the levels seen in the 2022 and 2023 financial years and it means Barratt will only be building modestly more homes than it did at the height of Covid when restrictions put building work on hold.

“The long wait for interest rates to be cut is clearly affecting demand as the cheaper mortgages everyone was expecting this year haven’t materialised, at least not to the extent that was initially anticipated.

“On a brighter note, there are clearly signs that the cost inflation experienced by the sector in recent years is beginning to ease. Notably, the company is expecting to buy more land going forward which suggests that the current financial year could represent a nadir in terms of the volume of homes built.

“Barratt will hope its proposed merger with Redrow gets the all-clear from the competition authorities – a combination helping to build scale and, both parties will hope, resilience.”

Direct Line

“Direct Line is finally caving in and putting its motor insurance policies on price comparison sites. This a major change for the business and a significant event.

“General insurance is a highly competitive market and unless a provider is willing to accept skinny margins by being the cheapest, they run the risk of being further down the rankings of a comparison site than some people would look when scrolling for deals.

“Insurers who shun comparison sites avoid paying a commission fee for sales and in theory can offer a lower rate to customers. That means they can better compete against policy providers who appear at the top of comparison site results.

“The big problem for Direct Line and others who have historically shunned comparison sites is that they’ve missed out on a big pool of potential customers. It’s become second nature for the majority of people to buy insurance via comparison sites and the channel is now often the first port of call for getting a quote.

“Direct Line is effectively saying it can no longer afford to ignore the comparison site channel. It might see an increase in customer volumes, but earnings will inevitably be lower for these policy sales. That could have a negative knock-on effect for dividend payments to shareholders.

“The company has been through the wars in recent years thanks to being caught out by unfavourable weather events which caused a spike in claims, together with cost inflation making it considerably more expensive to fix problems. Layer on top a weak balance sheet and the business was knocked off course. Now it is fighting back and big decisions are having to be made, even if it means a radical change to the business model.”

Travis Perkins

“After a string of setbacks, something major had to change at Travis Perkins and the fact it has appointed two industry heavyweights to the two most senior positions shows the company is serious about getting back on top.

“The former heads of Ashtead and Taylor Wimpey are becoming chair and chief executive, respectively.

“Geoff Drabble worked wonders at Ashtead with his sharp focus on making everything run as efficiently as possible, while always taking one step ahead strategically by reinvesting in the business. It will be his job to keep the rest of the Travis Perkins board in order, and he’s a solid pair of hands.

“Pete Redfern showed similar forward-thinking traits when at Taylor Wimpey, buying up land at attractive prices during the pandemic while rivals went into hibernation. That put the housebuilder in a better position to reap the rewards once market conditions improved.

“While Redfern’s tenure at the householder wasn’t perfect, with complaints about build quality and a leasehold scandal which prompted intervention by the competition regulator, it’s fair to say he should have learned from those mistakes.

“Redfern previously spent nine years as non-executive director at Travis Perkins, up until 2023. Part of the role of a non-exec is to bring a different perspective to strategic conversations and to challenge those involved in the day-to-day running of the business on their decisions. Perhaps he had some bold ideas that were shot down by the previous boss, Nick Roberts, and now is his chance to put them to work.

“There is a lot to do. Travis Perkins has been hit by a big drop-off in the housing and RMI (repair, maintenance and improvement) market. The share price having more than halved since 2021 illustrates the extent of the pressures on the business. Weaker volumes, overhead cost inflation and rapid commodity price deflation have caused all kinds of problems. Investors will be hoping the new leadership team can knock the business back into shape quickly.”

JD Wetherspoon

“Pubs chain Wetherspoons used to be all about volume of sales and not margins. That left the company exposed to increases in costs coming out of the pandemic.

“It is now delivering record sales from a streamlined trading estate and with debt under control the company expects to deliver results in line with forecasts.

“In a hospitality market which has seen a large number of venues disappear in recent years, Wetherspoons has an opportunity to further entrench its market position and it is investing in areas like beer gardens which could broaden the range of customers it might attract.”

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