All eyes on UK rate decision, Rolls-Royce to reinstate dividends, Next beats again and Wizz Air dives on profit slump

“‘Will they, won’t they?’ discussions have once again become the topic of conversation for investors after the Federal Reserve set the scene for a potential interest rate cut in September and the Bank of England announces its latest decision at lunchtime today,” says Russ Mould, Investment Director at AJ Bell.

“The Fed leaving rates unchanged yesterday wasn’t a surprise, but comments from Fed chair Jay Powell about a ‘real discussion’ at the rates meeting on cutting rates has kept hopes alive for a near-term cut. Wall Street enjoyed a strong session on Wednesday as tech stocks bounced back with a vengeance and futures prices imply another leg up when markets open later today.

“The market has ascribed an 86.5% probability of a cut from the Fed in September. In comparison, there is a 60.6% probability for the Bank of England to cut today. Investors will be sitting on the edge of their seat at midday, hoping that rates come down as that will start to take the pressure off household finances and potentially give equity markets another boost.”

Rolls-Royce

“Rolls-Royce has delivered one of the most impressive turnarounds in living memory. Reinstating the dividend is the cherry on top for investors who have backed the company in recent years, rewarded by significant share price gains and now some potential income on top.

“Five years ago, the market was fretting about faults with Rolls-Royce’s Trent 1000 engines. Covid then struck and left the balance sheet in tatters, prompting a £5 billion emergency plan to prop up its finances. Since then, Rolls-Royce has battled considerable disruption in the aviation industry and had to take difficult decisions to put the company back on track.

“Strong free cash flow has helped to get debt under control, it is generating better returns on the money spent on the business, and it is on track to hit fairly ambitious targets. Raised full-year guidance for profit and cash flow and the imminent return of dividends shows there is considerable momentum in the business. While the scale of the dividend might only be tiny and produce a minuscule yield, the fact it is returning any cash at all is a significant step forward.

“The share price has soared by 600% since October 2022, delivering the kind of returns that investors may only dream of. It’s certainly unusual for a company of its size to be able to produce such strong share price returns, but that just goes to show that Rolls-Royce was once stuck in a very deep hole and it has managed to climb back out.”

Next

“Next has a reputation for under-promising and over-delivering and it’s delivered the goods once again. The retailer had low expectations for summer 2024 as beating last year’s strong performance was always going to be a tough challenge.

“While the first half of 2024 has been truly miserable for the UK retail sector thanks to unfavourable weather, the end of June perked up and much of July has had glorious sunshine. That’s encouraged people to get out of the house and into the shops.

“Next has once again grabbed a slice of consumer spending, helping to make up for a challenging time earlier this year.

“However, you need to look beyond Blighty. Much of Next’s success in its second-quarter period came from overseas where growth rates were in double-digits.

“Many people might not realise Next has international operations and is active in 34 countries. At 1.7 million overseas customers, it is certainly not a marginal player and this amount compares to approximately one fifth of its UK’s online customer base.

“Next has found the magic ingredients to deliver strong returns. It has a reputation for selling clothes that are considered good quality and will last a long time, something that’s important to many shoppers. The ordering and returns system runs smoothly and it also knows how to get the most from a store network. Combine these factors together and you’ve got a business that stays one step ahead of the competition.”

Wizz Air

“Fresh from being nominated ‘worst’ airline for customer service by Which?, Wizz Air has now served up a set of results that have angered investors. The shares dived 15% after the airline reported a 44% slump in first-quarter operating profit and cut its full-year profit forecasts.

“Rather than being backlash to the unwelcome Which? trophy with travellers turning their back on the business, the problems lie with certain engines causing some of its fleet to be grounded.

“This is the latest in a string of problems for the industry, including consumers waiting until the last minute to book flights which has triggered a price war among airlines hoping to fill their planes.

“Wizz Air is still carrying millions of people each quarter, but investors are giving the company the cold shoulder with its shares now trading at a nine-month low.”

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