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“It’s another static day for the UK markets with the FTSE 100 flat at 7,676. Gains in oil companies, transport firms and tobacco stocks are offset by weakness in miners, industrial companies and tech stocks,” says Russ Mould, investment director at AJ Bell.
Babcock
“Babcock has been a frustrating business for a number of years. It is highly skilled and works on some very important projects yet struggles to achieve decent earnings growth.
“Investors are increasingly worried about funding pressures at the Ministry of Defence which is Babcock’s biggest customer. There have also been concerns about regulatory moves reducing profits allowed on defence deals.
“The latest trading update only adds to the frustration with reduced guidance for low single digit underlying revenue gains for the full year, which analysts take to mean 1% to 2%.
“Businesses need to keep growing sales at a decent rate each year in order to have a chance of producing excess cash that can help to pay down debt, if there is any, and support reinvestment to remain competitive.
“Admittedly Babcock looks to be in good enough shape to keep paying down its debt and there are signs of encouragement amid news of a £1bn increase in the pipeline of bids in progress to £14bn. You also have to consider that Babcock provides services that maintain essential infrastructure, so a lot of its work falls under non-discretionary expenditure.
“Yet the market wants stronger signs that the business has a healthy future and isn’t just ticking along.”
Sports Direct
“A big slump in annual profit at Sports Direct suggests the business should stick to its core skills rather than engaging in speculative investments in the retail sector.
“Sports Direct, which has invested in several high street peers over the years, began building up a stake in troubled department store Debenhams in 2017 and holds a near-30% stake. It has been punished with a £85m hit following a collapse in the Debenhams share price.”
Moneysupermarket
“The excitement around price comparison site Moneysupermarket may have less to do with the publication of its first half results and more to do with the announcement of a new mortgage fintech joint venture called Podium.
“This venture is aimed at developing a mortgage comparison tool. In the longer term the mortgage market, which the company argues is ‘ripe for disruption’, could provide a material avenue for growth.
“Podium is one of several initiatives the company is working on under its Reinvent strategy, which includes a new app and the provision of price comparison services on third party sites.
“In the interim, the business remains solid with revenue up 5% and operating profit up 7%. A more modest 4% increase in the dividend may reflect the investments the Moneysupermarket is making in the business.”
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