SSE and Sports Direct

“Investors will be happy to see the colour green on their screens today with the FTSE 100 finally returning to an upward trajectory. The blue chip index was up 0.1% to 7,280 in early trading on Wednesday, helped by strength in the mining, housebuilding, chemicals and oil sectors,” says Russ Mould, Investment Director at AJ Bell.

SSE

“It is very rare to see a profit warning from a utility company as they are meant to have fairly predictable income streams. Yet SSE bucks the trend because of the wrong type of weather.

“Blaming the weather is increasingly a go-to excuse for many companies. For example, JD Sports yesterday said its outdoor businesses had a tough time earlier this year because of the hot and dry weather – it prefers cold and rainy.

“Pets at Home has previously moaned about mild weather causing a late start to the flea season so its earnings didn’t spring to life; and Bisto-owner Premier Foods blamed warm weather for its sales problems two years ago, despite the fact we all like gravy on our Sunday roast come rain or shine.

“However, none of these excuses is as bad as US sandwich chain Cosi which previously blamed weak sales on the Pope visiting the East Coast of America.

“SSE has blamed ‘relatively dry, still and warm weather’ for affecting output from its wind farms and hydro-electric stations, as well as suffering from high gas prices.

“You could argue that is a reasonable explanation for missing earnings expectations, but shareholders may be furious with the company given how weak its share price has already been since May. It gets another bashing on today’s profit warning which is also connected to the looming sector price cap.

“Ultimately it is a good reminder that even seemingly defensive companies still have operational and regulatory risks.”

Sports Direct

“Sports Direct chief executive Mike Ashley has rarely been popular with investors and his failure to attend today’s AGM is unlikely to endear him to them further. It is the duty of a CEO to be present at important events which include the AGM as it gives shareholders – whom are also part owners of the business – the chance to challenge the person leading the company.

“Ahead of the meeting Sports Direct delivered a very pared-down trading update which offered wide guidance for anything between a 5% and 15% increase in underlying earnings for the current financial year. That’s without including any contribution from the recently-acquired House of Fraser.

“A lack of transparency and poor communication with the market might not matter as much if Ashley was quietly delivering the goods but there are several issues on which shareholders might want to hold management to account.

“A High Court Judge has ordered the company (as a witness) to produce documents required for a Financial Reporting Council investigation into the conduct of Grant Thornton in auditing Sports Direct financial statements from 2016 onwards. An appeal is planned.

“Then there is the question of the group’s oft-criticised working practices as well as its plans for House of Fraser and what it might do with its 30% stake in Debenhams alongside long-running corporate governance grievances.”

These articles are for information purposes only and are not a personal recommendation or advice.