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“The financial sector gave a welcome lift to the FTSE 100 on Tuesday with notable gains from Standard Chartered, Lloyds, Prudential and Barclays,” says Russ Mould, Investment Director at AJ Bell.
“The FTSE 100 advanced 0.3% to 7,331 with similar gains seen in the UK mid-cap FTSE 250 which jumped to 19,395".
WH Smith
“It is time to say farewell to the captain who helped steer WH Smith on path to further profit growth. Stephen Clarke is stepping down as chief executive after six years at top, a time during which he oversaw 24% growth in pre-tax profit and a 177% rise in the share price.
“While Clarke certainly deserves credit for helping WH Smith to avoid the pains affecting the broader retail sector, one must remember that the true architect of the company’s turnaround was actually previous boss Kate Swann.
“She made the business run more efficiently, sorted out a pension problem and, crucially, created a thriving travel business with WH Smith gaining a strong foothold in train stations, airports and motorway service stations.
“Clarke has arguably taken Swann’s successful model and sharpened it further. He made sure WH Smith’s stores were relevant such as stocking the latest trends, such as adult colouring books and spoof versions of Enid Blyton novels, and offering more ‘food on the go’ products.
“Clarke has also given WH Smith a strong foothold in the US with the 2018 acquisition of airport-based accessories retailer InMotion.
“He bows out at a positive time for the group which is holding up its chin despite ongoing difficult market conditions on the high street.
“A 1% like-for-like increase in sales for the 11 weeks to 18 May is satisfactory, albeit not earth-shattering. Drill deeper and it is the usual theme of faster growth in the travel arm and a small decline in the high street operations.
“Clarke’s successor Carl Cowling will no doubt want to stabilise the high street operations and may be interested in finding ways to accelerate WH Smith’s overseas interests and build scale in more locations. The current blueprint looks like a successful business model to follow.”
Tesco/ Mortgage Market
“Two announcements this morning reveal just how cut-throat the competition in the UK mortgage market remains.
“Building society Nationwide has flagged further pressure on margins and Tesco Bank is giving up the ghost completely and looking to exit the home loans space.
“Tighter regulation in the wake of the financial crisis closed off some of the more exotic ways banks looked to make money and saw a return to more traditional activities like lending and taking deposits to generate profit.
“This, combined with the emergence of challenger banks and a recent slowdown in the property market, means an increasing number of participants have been scrapping over slices of a diminishing pie.
“Cheaper mortgages are obviously good news for prospective homeowners and in that sense the market is working but the banks’ desperation for new mortgage business needs to be closely monitored.
“It could lead to a rise in bad debts if too many loans are given to riskier individuals simply to get new business, putting pressure on balance sheets and undermining the sector’s renewed commitment to dividends.
“For Tesco its decision to find an exit shows admirable discipline and demonstrates a drive to focus on more sustainably profitable activities. Banks and building societies have less room to manoeuvre when it comes to putting their capital into areas which will deliver a better return.”
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