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“It’s been one step forward, two steps back for the UK stock market this week. The FTSE 100 is on track to end the five-day trading session more than 1% down, making it one of the worst performing major stock market indices in the world,” says AJ Bell Investment Director Russ Mould.
Berkeley Group
“The chairman of London-focused housebuilder Berkeley, Tony Pidgley, has a reputation for his ability to call the housing market.
“For several years his sector has enjoyed advantageous conditions; it was building homes on land bought cheaply in the wake of the financial crisis, low interest rates made mortgages available for an increasing number of buyers and Government policy has been supportive.
“Today Berkeley warns that despite ‘compelling’ fundamentals, the operating environment does not support a step-up in production levels. This follows a warning in December that the current financial year would see profit reach its peak level.
“The trading statement is not well received by the sector, with several of Berkeley’s rivals suffering in sympathy. It is also unlikely to be music to the ears of ministers who are desperate to alleviate the housing crisis.”
JD Wetherspoon
“Once you’ve managed to wade through the omnipresent Brexit speech from chairman Tim Martin in Wetherspoon’s results, you’ll see a business that continues to churn out decent numbers.
“Nonetheless, a somewhat cautious tone regarding the outlook for the second half of its financial year is a reminder that even successful businesses still have to deal with the stresses of a difficult market backdrop.
“Wetherspoon anticipates higher costs and lower like-for-like sales growth. That doesn’t bode well for its earnings outlook with analysts only expecting very small levels of pre-tax profit growth over the coming years.
“The company’s USP (unique selling proposition) is cheap drinks and good value food. The ‘unique’ part can easily be challenged if rivals start to cut their prices.
“We’ve already seen this happen in the restaurant industry with offers galore and so one can safely assume parts of the pubs industry would also slash their prices in a similar fashion if life gets harder.
“Wetherspoon has been in that situation in the past and it has always found a way to survive, even if it meant a short-term price war to keep punters walking through the doors.
“Clearly a price war would add further pressure to its profit margins, yet Tim Martin is a man who doesn’t obsess over margins; he simply wants people visiting Wetherspoon’s pubs. Shareholders may not be so relaxed.”
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