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“The FTSE 100 traded lower on Thursday morning ahead of today’s UK interest rate decision. A hike is widely expected but investors will be watching the voting split and guidance on the future direction of rates closely,” says AJ Bell Investment Director Russ Mould.
Countrywide
“Investors should be very wary when a business is both operationally and financially geared as today’s news from estate agent group Countrywide demonstrates.
“Its shares have lost around two thirds of their value after it announced a heavily discounted placing to address its mounting debts.
“As a traditional operator, rather than a disruptive web-based rival like Purplebricks, Countrywide has lots of fixed costs relating to estate agency branches and staff which cannot immediately be taken out in response to weakening demand. In other words, it has high operational gearing.
“And, unlike its London-focused rival Foxtons, it also has lots of debt making it financially geared too. This creates a double whammy for the business as a softer property market has put a lot of pressure on the bottom line and made it increasingly difficult for it to service its borrowings.”
Rolls-Royce
“Aircraft engine manufacturer Rolls-Royce is continuing its renaissance under the stewardship of chief executive Warren East guiding for full year profit to be at the top end of expectations.
“However, as the up, then down, then up market reaction to today’s interim results demonstrates, there is a slight fly in the ointment.
“This is the £554m charge taken to cover the costs of addressing problems with its Trent 1000 series of engines. Combined with currency-related write downs and restructuring charges the company chalked up a pretty hefty loss for the period.
“But these are largely non-cash items and it was weak cash flow performance that was a big factor in the historic negative market sentiment towards the business.
“So, a £211m improvement in the free cash flow performance year-on-year and reaffirmed pledge to deliver at least £450m for 2018 as a whole is enabling investors to look past the write offs.”
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