Market slips back, AA recovery, new TalkTalk warning and Compass pushes ahead

“The UK stock market recovery rally didn’t last long with the main indices taking a small step back as markets open on Thursday. The FTSE 100 slips 0.4% to 7,253 and the FTSE 250 dips 0.2% to 19,659. This implies investors are still nervous following the troubles at the start of the week,” says AJ Bell Investment Director Russ Mould.

AA

“The AA has been a confusing stock for investors ever since it joined the market in 2014. The original investment case centred on a well-known brand with a loyal customer base generating a steady stream of cash to help pay down debt over the long term. With the shares down approximately 40% since the IPO, it clearly hasn’t been as smooth a ride as some people expected.

“Today’s trading update does provide a glimmer of hope, as reflected by the shares enjoying an 8% hike off the back of the news. New membership figures grew by 7% in the year ending 31 January 2018 and car insurance sales are also doing well, up 6% in the period.

“Interestingly, the AA saw a surge in breakdowns in the second half of 2017. Although the business incurs costs to help its customers on the road, breakdowns should remind customers of the AA’s importance and, in theory, increase future retention.”

TalkTalk Telecom

“Broadband and phone provider TalkTalk has warned on profit, announced a £200m fundraise and slashed its annual dividend from 7.5p to 2.5p as executive chairman Charles Dunstone looks to reset the business following his appointment a little over a year ago.

“Investors should have already been braced for a dividend cut, given the stock was yielding more than 6% based on yesterday’s close and the (now defunct) consensus dividend forecast.

“These negative items are likely to overshadow joint venture plans with M&G Prudential’s infrastructure investment arm to provide fibre broadband roll out across the UK.”

Compass

“Catering group Compass has caught investors’ attention with a decent trading update showing 5.9% rise in revenue for the three months to 31 December 2017.

“A key point is guidance for 2018 where Compass says it now expects to be above the middle of its 4% to 6% organic growth range for the year.

“That’s encouraging, yet the core challenge for Compass is to keep finding ways to push up its margins. We’ve got guidance for margin progression in 2018, but the company implies this may not happen until the second half of the year.”

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