JD Sports, PageGroup and Revolution Bars

“Natural resources companies are primarily to blame for the FTSE 100 falling 0.5% on Monday. Also contributing to the weakness are telecoms, tobacco and utility stocks. Markets across the rest of Europe are also flashing red, so too much of Asia. The standout performer was Japan’s Nikkei index which rose by nearly 1%. “Ongoing Brexit uncertainty hasn’t helped matters with the UK-focused FTSE 250 index also down at the start of the week, falling 0.5%. Investors will be hoping for some answers on the dreaded ‘B’ word as we approach the all-important parliamentary vote on Tuesday,” says Russ Mould, Investment Director at AJ Bell.

JD Sports

“Sports fashion retailer JD Sports puts its best foot forward with its first update of 2019, demonstrating that retail may be difficult in the current environment but is clearly not impossible to to keep the tills ringing.

“While like-for-like sales growth of 5% is solid, what is particularly impressive is that margins have been maintained.

“The company has not reacted with panic to an uncertain consumer backdrop but has still clearly achieved the sales required to not just hit market expectations but come in at the top end of them.

“Crucially this is not a concept in search of a customer. There is clear demographic which buy into the so-called athleisure boom which helps drive demand for the branded sportswear and trainers carried in JD stores and through its website.

“Fashions can change but JD has managed to stay on top of what its shoppers want for a number of years.

“Management have previously observed these shoppers, often young enough not to be burdened with mortgages or other drains on their disposable income, have continued to spend in previous downturns, describing their pricing point as ‘aspirational but affordable’. Only time will tell if this will hold true in the future.

“The other key challenge for the company will be proving its acquisition of the US Finish Line business is not the step too far it is perceived to be in some quarters.

“Finish Line does give the company a foothold in a potentially huge market but it also a business which has been struggling badly for a number of years. The US has also proved to be a graveyard for many UK retailers’ ambitions in the past.”

PageGroup

“Sometimes it pays to look beyond the headline messages presented by a company in a trading update or financial results. Recruitment specialist PageGroup has reported a record quarter and year for the group, so why are its shares falling on the news?

“If you look under the bonnet you’ll see several negative factors spooking investors.

“A slowdown in the pace of fourth quarter gross profit growth for temporary job placements has taken the shine off the business. Temporary job gross profit grew by 9.8% in Q4 2018 versus 13.6% a year earlier. On a constant currency basis the comparative figures were 9% in Q4 2018 versus 14.4% in Q4 2017.

“Brexit uncertainty continues to be a drag on UK operations with a meagre 2.1% gross profit growth in the final quarter of 2018, year-on-year, and its growth in China has slowed quarter-on-quarter because of concerns related to the country’s trade war with the US. “The company also guides to a slowdown in the number of people it has hired to place candidates into jobs.

“Activity involving ‘fee earners’ is normally a good way of gauging confidence in the recruitment market. If a staffing agency feels that companies are confident enough to take on more workers or replace anyone leaving their job, it will continue to hire recruitment consultants. Additions will slow or cease if the outlook is gloomier.

“Importantly, PageGroup’s CEO Steve Ingham says he is ‘mindful of the heightened geopolitical and macro-economic uncertainty, which has the potential to impact client and candidate confidence’.

“It is lucky that PageGroup is so diversified geographically as there are plenty of bright spots that will help to cushion the blow from one or two negative regions. But concerns about a slowdown in global economic growth will inevitably weigh on the shares, suggesting that PageGroup and its peer group will find 2019 a lot harder than last year.”

Revolution Bars

“Revolution Bars has been a favourite among many retail investors for several years with individuals attracted to its upmarket proposition and that fact it was previously a takeover target for Slug and Lettuce-owner Stonegate Pub Company with a 203p per share offer in August 2017.

“Unfortunately clinging on to past ‘achievements’ would have been the wrong strategy to pursue, judging by yet another profit warning from the business.

“Falling sales and rising costs, together with a cautious outlook, has forced the company to downgrade earnings expectations, and thus the shares have slumped to an all-time low.

“Some investors may wonder if this renewed share price weakness will attract another bid for the company. If it does, you can bet that it won’t be at the same level as before.

“A suitor, if there is one at all, may question why the business has been struggling for several years and whether its proposition is actually right or not for the current market environment.”

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