Costa Coffee to go, Persimmon faces up to shareholders, Boohoo growth overshadows margin pressure

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“A weak trading session on Wall Street, driven by disappointing corporate earnings and a spike in the yields on government bonds, saw the FTSE 100 come under pressure on Wednesday. In early trading the index was down around 0.4%,” says AJ Bell Investment Director Russ Mould.

Whitbread

“That didn’t take long. Just over a week after it emerged activist investor Elliot Capital had taken a stake in the company and Whitbread has announced plans to demerge its Costa Coffee business within the next two years.

“The message from the company is that this was the idea all along and that it was simply waiting for the ‘right time’ but it seems the presence of Elliott and its activist counterpart Sachem Head Capital on the shareholder register has provided the catalyst for action.

“A muted market reaction indicates the move was already being priced in by investors, but it is worth noting that spin-offs often outperform the market. In 2017, for example, the Bloomberg US Spin-Off Index produced a total return of 35% against 21.8% for the S&P 500.”

Persimmon

“Forward sales revenue at housebuilder Persimmon was up 8% year-to-date to £2.76bn but the company only managed a modest advance this morning amid wider weakness in the market and ahead of a potentially fractious AGM later.

“Management are under fire for the £100m bonus (later trimmed to £75m) afforded chief executive Jeff Fairburn and are also expected to face pressure from several major investors over paying its employees the ‘real living wage’.

“The group’s reminder to the market that the total value of its capital return programme is now £4bn, after a lift in the remaining payments, may help keep shareholders on side.”

Boohoo

“Are investors interested in growth or profitability? After revealing pressure on margins at its first half results in September, highly rated online retailer Boohoo saw its shares drift around 40% lower.

“However, it bounces back in fine fashion this morning after reporting a near doubling of revenue to £579.8m for the full year. At the same time the downward pressure on margins continues – pre-tax profit is up by a more modest 40%.

“Warren Buffett's mentor Benjamin Graham once argued ‘In the short-term, the stock market is a voting machine but in the long run it is a weighing machine.’

“Meaning that fashionable investments may hold sway for a period but eventually earnings and cash flow must be delivered to sustain the valuation attributed to a stock.”

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