FTSE dragged down by energy sector, Bunzl warns over deflation shock, Indivior bows to investor pressure, Capita’s cash outflow troubles market, Chemring margins slip and Hollywood Bowl hit by mini-golf write-off

“Energy and pharma stocks weighed on the FTSE 100, causing the index to fall 0.7% to 8,203,” says Russ Mould, Investment Director at AJ Bell.

“Investors are growing concerned that China’s bold plan to grow its economy faster isn’t working and that spells weaker demand for commodities.”

Bunzl

“It’s rare to see Bunzl doing anything other than plod along so a warning from the distribution company has caught the market by surprise.

“The company says stickier than expected deflation will hit profit and that’s upset the share price.

“Bunzl supplies items needed by companies to do their work but nothing that’s sold to customers, making it an essential cog in the wheel. It makes a small margin on supplying products, but a deflationary environment can act as a headwind if it has already bought a lot of stock at higher prices and has to sell them for less than originally expected.”

Indivior

“Indivior has bowed to pressure from its second biggest shareholder, Oaktree, to reshape its board of directors after the company went off the boil.

“Oaktree didn’t mince its words in a letter last month that described Indivior’s stock performance as ‘value destruction’ and said management were ‘doubling down on a failing strategy’.

“The shareholder implied that Indivior had gone down the wrong path of ‘unproductive acquisitions’, a now-discontinued business line and excessive spending on research and development, arguing that it would have been more productive to focus on its core product, Sublocade.

“Oaktree isn’t known as an activist investor so when it names and shames a company in public, you know its patience has worn thin. Indivior’s management were ridiculed by Oaktree and there are only two ways to respond – ignore the comments and dig a deeper hole or realise that something has to change.

“It’s clear that the latter decision has been taken, but the market isn’t immediately convinced given how the share price has fallen further on the board reshuffle. Fixing Indivior is not going to happen overnight and Oaktree’s minor victory might simply be the first step in a complicated repair job. More radical action might be required.”

Capita

“Worries about the level of cash flowing out of the business spooked investors in Capita. The outsourcing company guided for up to £140 million of free cash outflow in 2024 as a result of lower revenues and a change in approach to managing its working capital. It also guided for a hit to free cash flow in its new year, completing a barrage of bad news that left investors shaking their heads in disappointment.”

Chemring

“At a time when much of its peer group is benefiting from an increase in global security risks and instability, defence outfit Chemring continues to shoot itself in the foot.

“While there were several positives in the company’s full-year results, the fall in underlying profit margins did not go unnoticed by the market. Much of this is linked to the production challenges in its Tennessee countermeasures business.

“The company also hasn’t been helped by forex headwinds and investors may have been spooked by guidance for a repeat of the second-half weighting seen in these results in the new financial year.

“To put its share price underperformance into context, since the invasion of Ukraine by Russia in early 2022, BAE Systems shares have more than doubled, while Chemring is up just 30%.

“Ambitions to double revenue to £1 billion by the end of the decade are all well and good but to start lending credibility to this target, the market will need to see more evidence of delivery in the here and now. A record order book of more than £1 billion offers some visibility on future growth, Chemring just needs to show it can get the execution right.”

Hollywood Bowl

“Are impairments now par for the course for Hollywood Bowl? A £5 million impairment on its Puttstars mini-golf operations has marred its full-year results and put a dampener on the share price. Income from the company’s Canadian business was also hit by unhelpful currency moves.

“Despite these negative issues, there were areas for the company to celebrate as it reported record annual revenue. Hollywood Bowl’s offering of a relatively good value, family-oriented activity, which can be enjoyed when the weather is poor, is clearly resonating in both the UK and Canada.

“Net cash dropped materially but this reflected significant investment in the company’s estate – which should help draw more people in.

“Refurbishing sites is a key part of Hollywood Bowl’s strategy. These are no longer the tired bowling alleys of 20 years ago where paint was peeling off the walls and you had to swap your own shoes for some musty, ill-fitting footwear which had already been worn by countless people.

“The company has made a solid start to the new financial year and investors will be looking for further progress in Canada and evidence the extra costs created by the recent Budget changes can be absorbed by the business in the coming 12 months.”

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