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“There is only one thing on investors’ minds today: the sinking pound. A drop in sterling below $1.20 for the first time since 2017 weighs on the UK-focused FTSE 250 index and drags it down 0.1% to 14,463. It is also bad news for UK domestic FTSE 100 stocks including the housebuilders, supermarkets and various banks,” says Russ Mould, Investment Director at AJ Bell.
“The market hates uncertainty and that extends to politics. The current chaos around the UK exiting the EU threatens to push down sterling even further unless we get a clear idea of what is happening and when."
Restaurant Group
“Expectations have been fairly high for Restaurant Group’s recovery after the market had time to digest the (expensive) purchase of Wagamama and how it might actually help to revive the group. It also seemed as if management had finally got a grasp on the problems hanging over its other brands including Frankie & Benny’s.
“Unfortunately its half year results don’t quite live up to the hype around its recovery efforts. Yes, Wagamama is doing well and there are signs of progress with repairing its other interests. But there are a few items on the menu which leave investors with a stomach ache.
“It has suffered £115.7m in one-off charges including a large impairment on its leisure business (which is primarily Frankie & Benny’s and Chiquito) where management are taking a more cautious view. A mere 0.2% like-for-like sales growth in the most recent six weeks is also very disappointing.
“There are a lot of moving parts with the business and it will take a lot longer to get each one running smoothly.
“On the positive side operating cash flow has greatly improved and there is a clear plan to execute. On the negative side is a weak consumer backdrop, intense competition in the casual dining sector and uncertainties that Brexit will bring to the UK economy and consumer spending in general.
“Today’s very negative share price reaction is down to expectations being too high and Restaurant Group not delivering enough good news to keep the stock rising.”
Ferguson
“It seems like we’ve got yet another company bowing to activist pressure. Trian Fund Management bought a 6% stake in Ferguson in June, saying it was an attractive business trading at a discount to its US peers. Reports suggested Trian wanted Ferguson to move its listing to the US and sell its UK operations. Both these events now look highly likely.
“Ferguson’s proposal to demerge its UK operations is merely following the direction of travel it has been on for some time, namely selling off other non-US assets. The UK operations are small in the bigger scheme of things, only accounting for 4.9% of group trading profit in the first half of 2019.
“It now also seems plausible that the company will switch its listing to the US which would be a blow to many of its big investors who hold the stock in UK equity funds including BlackRock, Franklin Templeton, HSBC and Invesco.
“If Ferguson did leave the UK market, it would represent yet another well-known British business delisting from the London Stock Exchange as a result of a takeover, merger or strategic refocus.
“This trickle of exits is not good for UK investors who have previously enjoyed access to a wide range of businesses and sectors. At the current rate they risk having a more limited pool of industries from which to choose.”
These articles are for information purposes only and are not a personal recommendation or advice.