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“One would have thought that better than expected economic growth in China would give the FTSE 100 a lift given the presence of many commodity producers in the index who sell to that country.
“However, the FTSE slipped 0.2% to 7,457 because investors got the jitters over BHP following Rio Tinto in cutting its guidance for iron ore production. Utilities stocks were also weak,” says Russ Mould, Investment Director at AJ Bell.
Bunzl
“Markets have been right to worry about a global economic slowdown if you look at Bunzl’s gloomy update.
“It supplies goods to companies so they can do business, rather than items they sell on to their customers. For example, this includes coffee cups for cafes, cleaning products for hospitals and food wrap for supermarkets to protect their goods. Therefore, it can be considered an economic bellwether.
“Bunzl calls itself ‘GDP-plus’, meaning its earnings should grow in excess of GDP in the countries in which it operates.
“Analysts should have already factored in slowing GDP growth to their earnings forecasts because of plentiful signs of economic weakness around the world. Yet life is much worse than expected for Bunzl judging by its sharp share price decline on the news.
“The fact that underlying revenue growth during its first quarter seems to have slowed in all markets is a major alarm bell. The big question is whether life is going to get even tougher in its second quarter.”
Pendragon
“You know a profit warning is bad when a company launches a ‘review’ in its wake. Margin pressure has resulted in a first quarter loss for used and new car dealer Pendragon.
“Its earnings were considerably below expectations. Investors will be hoping the review doesn’t turn up any nasties when the UK’s biggest dealer publishes the results in June.
“What today’s news indicates is a continuing reluctance on the part of UK consumers to splash out on big ticket items amid economic and political uncertainty unless prices are cut.
“Pendragon apparently made the judgement that it would rather maintain market share even if this impacts profitability. Performance was also hit by teething problems in its Car Store franchise.
“Investors can take a little comfort from the growth in lucrative after-sales work but otherwise this is pretty miserable news which is likely to firmly put the brakes on a year-to-date rally in the shares.”
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