FTSE 100 higher, Entain soars, EasyJet caught up in air traffic disruption, Barratt and Lloyds unveil housing venture, TGI Fridays’ UK operator sees shares slump 90% in a day

“The FTSE 100 got off to a strong start on Monday, helped by strength in the resources space as oil prices bounced from their recent lows,” says AJ Bell Investment Director Russ Mould.

“The index had endured some weakness last Friday as US non-farm payrolls came in below expectations. The outcome seemed to cause the market concern that the US economy is headed for a hard landing after all, as the Federal Reserve readies its first interest rate cut of the current cycle.

“Figures from KPMG and the Recruitment and Employment Confederation showed a cooling in the UK jobs market, with the worst monthly reading in more than a decade for August, which potentially gives the Bank of England greater room for manoeuvre on rates.

“European stocks were higher as traders eyed a meeting of the European Central Bank later this week at which it is widely expected to cut rates.

“In the latest sign that Aldi is a competitive threat which isn’t going away for the likes of Tesco, the company has announced an eye-catching £800 million worth of investment in its British estate with 23 new stores to be opened by the end of the year.”

Entain

“Gavin Isaacs has only been chief executive of gambling group Entain for a week and he’s already managed to issue a trading update that’s put a rocket underneath the share price.

“Trading has been good in recent months, helping to restore market confidence in the company’s ability to bounce back after a patchy few years.

“Isaacs will certainly welcome a more positive backdrop as there was a big risk he was wading immediately into quicksand on the first day of the job, having to fight hard to stop the business sinking further into the ground.

“Entain has had a problematic few years, dealing with a bribery investigation and allegations that it overpaid for acquisitions which haven’t lived up to expectations.

“The business has been circled by activist investors hoping to push through change and score an easy win, particularly as the share price had fallen by 75% between September 2021 and August 2024. So much bad news has been priced into the company’s valuation that it might only take the smallest bit of positivity to drive a recovery rally, just as we’re seeing from the latest trading update.”

Easyjet / Ryanair

“Air traffic control disruptions have become problematic for airlines as they can lose millions of pounds from cancelled flights. The problems seem to be getting worse and 2024 is no exception.

“A weekend of pain at Gatwick airport caused disruptions for multiple airlines, with EasyJet worst affected and British Airways and Wizz Air also caught up in the storm. Air traffic control staff shortages resulted in temporary flying restrictions at the airport, grounding many planes at the tail end of the busy summer period.

“Under the circumstances, it’s a surprise to see EasyJet’s shares flying higher. Perhaps the market hasn’t cottoned on to the likely setback to earnings.

“What’s not a surprise is Ryanair chief executive Michael O’Leary calling for the resignation of Martin Rolfe, boss of UK air traffic control provider NATS.

“Airlines across the board are extremely frustrated by the constant disruption to service. Hundreds of thousands of travellers are being affected each year and the airline industry is suffering both reputational and financial damage.”

Barratt Developments / Lloyds / Housebuilding

“In another sign of the Labour Government’s push to get Britain building, housing agency Homes England is teaming up with Barratt Developments and Lloyds on a new venture: the MADE Partnership.

“It might sound like a trendy architects’ practice but this new joint enterprise is aimed at building tens of thousands of homes to help address the UK’s housing crisis. MADE will act as master developer on these residential-led projects with Labour already looking at developing underused areas like car parks and green spaces with limited environmental value.

“The £150 million being put in by each party is relatively modest given the scale of the supply/demand imbalance in the UK but it is flagged as an ‘initial’ investment, suggesting more money could be put into it in the future.

“Coupled with reforms to planning rules, where housebuilders often grumble about red tape, Labour will hope such initiatives can help it achieve an ambitious goal of building 1.5 million homes before the next election.

“However, the trajectory of interest rates may have just as a big a part to play, as housebuilders are only likely to build in volume if the demand is there. That requires affordable mortgages. The other issue is the industry benefits from the current imbalance between supply and demand and therefore its incentive to do something meaningful about it, even if it could, is somewhat limited.”

Hostmore

“It’s an awful start to the week for restaurant group Hostmore, which will certainly be saying ‘Thank God It’s Friday’ in four days’ time after the turmoil it’s going through. The company’s share price crashed 90% after an expansion plan went up in smoke, implying there is little to no value left in the listed business for shareholders.

“Having operated under the TGI Friday’s brand in the UK for some time, Hostmore had been trying to buy the global master franchise owner. It was a bold deal from the start, given how Hostmore has struggled as a listed company from the outset.

“Arguably one of the most tired dining brands on the market, TGI Friday’s is a name that now has more connotations with ‘remember the days’ nostalgia TV shows looking at past lives, rather than something that still holds its own against a growing number of modern chains.

“The acquisition would have significantly increased Hostmore’s scale and given it a big presence in the US. It would also have released Hostmore from the shackles of an existing franchise deal which is described as restrictive.

“Unfortunately, the acquisition has been scrapped after the UK group was removed as the manager of TGIF Funding, which owns the right to collect royalties from the TGI Friday’s restaurant franchise. Without control over the royalty stream, the acquisition becomes significantly less appealing.

“A deal to sell Hostmore’s corporate stores has also taken a turn for the worse. While the transaction is expected to proceed, the value of the stores is now expected to be less than the value of the secured debt.

“It’s effectively game over for Hostmore as a listed business, with the board saying the company will be wound up and delisted.”

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