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“This week’s recovery rally has taken a small step back with the FTSE 100 dipping 0.2% on Thursday. In comparison, markets in mainland Europe continued to enjoy steady gains as did parts of Asia such as Hong Kong’s Hang Seng index which jumped 1.75%.
“Oil stocks were out of favour, which has a negative impact on the FTSE 100 as its biggest constituent Royal Dutch Shell has a major influence on the direction of the index,” says Russ Mould, investment director at AJ Bell.
Just Eat
“Investment to fight off competition has caused Just Eat to warn that full-year earnings may come in towards the lower end of expectations, although investors don’t seem too worried given how the share price jumped up in early trading.
“The company has been spending money on setting up a network of delivery drivers as failure to do so would leave it looking very weak compared to other rivals who already had the wheels to deliver orders.
“Investors didn’t like Just Eat’s big spending plans earlier this year, causing its share price to wobble, even though strategically it had no choice but to make this investment. Just Eat has also had to spend money in Latin America to stay competitive.
“One could argue that the market already knew about the heavy investment Just Eat is making in its business, so the focus now is really on how sales are performing. And that’s where it is more interesting – it says full year revenues are likely to come in towards the top end of management forecasts.
“So why is the investment issue so important? Just Eat is essentially spending money now to make more money in the future. That’s fine to a point, yet the bigger concern is whether its rivals have deeper pockets to do the same to a greater degree.
“Deliveroo is the key one to watch as it is seen to have the financial capacity to achieve greater market share gains through heavy spending. Uber Eats is also eager for a slice of the pie and is presenting another competitive challenge to Just Eat.
“These issues add up to a serious problem for Just Eat’s management. While their proposition is fine, there are simply too many contenders trying to feast on the market opportunity. At some point the weakest will fade away; Just Eat certainly doesn’t want to be that one.”
BT
“A modest cut to the first half dividend does not appear to have put investors off at telecommunications giant BT as they focus instead on the early progress delivered by its restructuring plan.
“Outlined earlier this year, the overhaul has already seen 2,000 staff in management and back-office positions depart. As a result, earnings for the full year are set to be at the upper end of guidance, albeit still lower than last year’s total.
“This better-than-expected performance is driven by taking costs out of the business. Its Global Services international arm continues to be a problem child and, combined with reductions in the prices charged on its Openreach fixed-line network, revenue fell despite a more encouraging showing for the Consumer arm which includes mobile network EE.
“A similar dividend cut at the full year stage would imply a yield of 5.6% at the current share price and investors will be watching incoming chief executive Philip Jansen closely after he joins in February to see if he is tempted to rebase the dividend further.
“The content sharing deal recently agreed with rival Sky also raises questions over how aggressive Jansen might be in bidding on expensive rights to televise football in the future.”
Royal Dutch Shell
“Today’s reaction to a 37% increase in third quarter profit from Royal Dutch Shell offers a reminder that oil and gas companies, no matter how well they are performing, are still at the mercy of fluctuations in oil prices.
“Brent crude slipped on Wednesday, extending the losses seen in the last month as investors have become more risk-averse.
“Markets are forward looking, and Shell’s results were delivered against the backdrop of oil trading at multi-year highs. This may not be the case in the final part of the year.
“Combined with the negative impact of the falling oil price there are other factors which may explain the lukewarm reaction to the update.
“Unlike BP, which delivered better than expected numbers earlier this week, earnings are slightly short of consensus expectations. There might also be some disappointment at the lack of an increase in the dividend despite cash flow from operations of nearly $15bn.”
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