Pound hurting, activist targets Saga, destocking holds back Premier Foods, and relief for TalkTalk

Wednesday, July 17, 2019 - 09:57

“The pound is under increasing pressure as we draw closer to a decision on the Tory leadership contest and Brexit. It fell a further 0.1% on Wednesday morning to trade at $1.2393. This currency weakness weighed on UK domestic stocks including Sainsbury’s and Marks & Spencer, both among the top fallers on the FTSE 100 index. “The blue chip index itself fell 0.2% to 7,560 while the more UK domestic-focused FTSE 250 declined by 0.1% to 19,640,” says Russ Mould, Investment Director at AJ Bell.

Saga

“And so it begins. Saga’s dramatic fall from grace has seen its share price fall to such low levels that an activist investor has popped up on the shareholder register.

“Elliott Investors has form in shaking up businesses, including diversified resources group BHP and investment trust Alliance Trust, and it has now taken a 5.1% stake in Saga.

“Activists like to challenge management on their decisions and make suggestions to put a company back on the right path and/or realise hidden value by pushing for asset sales.

“Saga has a valuable brand associated with the over-50s market and is principally focused on travel and insurance. It has already announced changes to how its insurance business works and so Elliott would need a convincing argument to push for further change. However, the activist may have a way of better exploiting Saga’s position in capitalising on the older generation’s increasing desire to travel.

“Saga is currently searching for a new chief executive and so Elliott may want to have a say in who is hired, although one would suggest it will need a bigger stake in the business to have any influence on strategic decisions.”

Premier Foods

“Consumers remain hungry for sugary treats and cooking sauces as illustrated by Premier Food’s 1.1% rise in first quarter sales. It benefits from having some of the best-loved brands on the market including Mr Kipling and Sharwood’s.

“Unfortunately brand strength is less important when retailers have too much inventory as a result of Brexit stockpiling.

“Earlier this year businesses loaded up on goods to ensure they had enough products to sell should Brexit distribute supply chains. As Brexit was pushed back, many businesses found they had too many items in reserve and so cut back on buying more goods until the existing stockpiles had been run down.

“Clearly this is bad for Premier Foods, as per comments that Irish sales were held back by customers unwinding their Brexit-related stock. However, there is a chance that we get a reverse of this situation as the new Brexit deadline draws closer and stockpiling happens once again.

“If you put the stockpiling issue to one side, the trading update would suggest Premier Food’s increased marketing efforts are paying off, with greater advertising a key contributor to the 10% rise in Mr Kipling sales. What the trading update doesn’t tell you is the impact of this extra marketing on profit margins.”

TalkTalk Telecom

“For a company with such a troubled history as TalkTalk, saying that earnings guidance is unchanged is cracking news for its shareholders.

“They can breathe a sigh of relief that there aren’t new problems to depress the share price and that the business is getting on with the day job.

“And to its credit, customer churn rates are low, and it has nearly double the number of net customer additions to its fibre products.”

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


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.