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“There is a noticeable lack of bargain hunters on Monday morning as last Friday’s rebound in select parts of the market fails to extend into the new working week. The FTSE 100 was down 0.1% in early trading at 6,988 with investors clearly lacking confidence to snap up stocks whose share prices were badly damaged in last week’s market sell-off. “On Monday, gold miners, drug makers, gambling stocks and tobacco companies were the only real large cap sectors to rise; the worst FTSE 100 performers were financials, engineers and healthcare equipment stocks,” says Russ Mould, Investment Director at AJ Bell.
Greencore
“Irish foods business Greencore has done a u-turn on its North America expansion plan by striking a deal to sell its entire US operations for £817m.
“It first entered the US convenience market with the acquisition of Home Made Brand Foods in 2008. It then bought HC Schau and MarketFare Foods in 2012, followed by the purchase of Peacock Foods in 2016.
“The US division disposal isn’t entirely surprising given how Greencore has struggled in that part of the world for several years as the loss of a contract with Starbucks in 2017 and slower than expected new business wins left earnings short of expectations.
“That led to management changes and the closure of a manufacturing facility in Rhode Island, plus a significant loss of investor confidence in the business. Its share price fell from 392p in April 2016 to a low of 127p in March 2018.
“The stock had recently started to recover on market chatter that Greencore had attracted some takeover interest. Clearly any talks have resulted in the sale of part of the group, not the whole business.
“Shareholders may not be enamoured by the promise of a 72p special dividend. That doesn’t really provide full compensation for the capital losses they’ve experienced as a result of the US division’s problems.
“However, one has to applaud Greencore for taking decisive action. Too often businesses retain struggling operations in the hope they will eventually improve. In reality many of these businesses are wasting money trying to keep their head above water when they would be better off cutting ties completely and focusing on stronger operations.”
Superdry
“High street fashion brand Superdry’s weather-related warning today could lead to significant questions over the true strength of its brand. This is more of a concern than the flagged losses linked to foreign exchange movements.
“In fairness it is not unusual for retailers to blame warmer autumn temperatures for a shortfall in sales of higher margin heavier clothing like jumpers, coats and jackets.
“The more robust profitability associated with these items is reflected in the fact Superdry generates up to three quarters of its profit in the second half of its financial year, running to the end of April.
“The company is looking to address this situation by bolstering its offerings in other areas like denim and sportswear but there has to be a risk that fickle shoppers are simply growing tired of its faux-Japanese styling.
“Shares in the company have more than halved this year with weather also fingered as the culprit for weak trading in a May update (this time it was too cold) and the departure of founder Julian Dunkerton in March has also affected investor sentiment.
“Superdry badly needs a spell of solid performance to help win over the doubters.”
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