FTSE comeback, Debenhams’ latest disaster and Weir doubles down on resources

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“The FTSE 100 gains 0.2% to 7,333.07 as yesterday’s weak inflation figures continue to weigh on the pound. Around 70% of constituents’ earnings come from overseas and weaker sterling should boost the relative value of these overseas earnings,” says AJ Bell investment director Russ Mould.

Debenhams

“A 52% decline in first half underlying pre-tax profit is a disaster for management at Debenhams and worse than market forecasts. Debt is rising and the dividend has been slashed.

“This latest drop in profit will only add to a grim sequence of declines which makes it clear that Debenhams is in a very weak position.

“Commentators have suggested we’re close to the death of the department store model for some time and Debenhams’ latest figures certainly add fuel to the fire.

“Its stores suffer from a lack of investment historically and the business has developed a reputation for over-priced gift sets and Blue Cross price promotions to help shift clothes that are functional rather than fashionable.

“That approach is unsustainable in today’s competitive retail environment where the best companies are thriving thanks to superior customer service, wide stock ranges and brands that are front of mind when you want to go shopping.”

Weir

“The market seems pleased with Weir’s strategy of doubling down on resources exposure. Alongside a robust first quarter trading update which shows orders up 22% Weir announces plans to buy mining services business ESCO for $1.29bn in a cash and shares deal.

“The cash component of the acquisition is to be financed by a share placing and debt. The plan is to sell the Flow Control business which provides products and services to the power generation sector.

“This will leave the business almost entirely focused on the highly cyclical mining and oil and gas industries and potentially exposed to any downturn in commodities.

“As a result of the deal, net debt is expected to hit two times earnings but the proceeds from the Flow Control sale, anticipated in 2019, should help reduce borrowings.”

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