Morrisons has fingers in many pies and US vaping crackdown hangs over British American Tobacco

Thursday, September 12, 2019 - 09:57

“Trump’s decision to delay a planned tariff hike on $250 billion of Chinese goods has raised hopes among investors that relationships between the US and China aren’t as battered as many had feared. This has led investors to bid up shares in commodity producers such as Glencore and Anglo American,” says Russ Mould, Investment Director at AJ Bell.

“A rally in the miners gave some support to the FTSE 100, although the index was being pulled in the other direction by weakness in banks, utility providers and pharmaceutical firms. The overall result was a mere 0.1% gain in the FTSE 100 to 7,343."

Morrisons

“There are a lot of moving parts to Morrisons as a business, illustrating how it has had to be creative with finding new ways to make money than simply running traditional supermarket stores.

“Its wholesale business has become an important growth driver and it is encouraging to see a range of new activities including an extended deal with Amazon.

Ocado is no longer the exclusive digital partner which means Morrisons is free to strike deals, perhaps on better terms, with other providers to help grow its online food retail market share.

“Like Tesco, Morrisons has been slashing prices in an effort to stop customers defecting to discounters Aldi and Lidl.

“But it is clear that Morrisons is having to pedal very hard to get up the hill. Simply having shops close to large communities is no longer enough to guarantee decent sales. That is why wholesale operations are likely to play a much bigger role in the future as it provides plenty of opportunities to accelerate growth.

“Management remains optimistic about the future and that is evident in not only dividend growth well above the current rate of inflation, but also a special dividend on top. These dividends wouldn’t be so generous if the supermarket thought that life was about to get much tougher.”

Brittish American Tobacco

“The regulatory pressure on the tobacco industry just dialled up a notch as the unpredictable Trump administration announced plans to ban flavoured e-cigarettes.

“This overnight development rather overshadowed news of a restructuring at British American Tobacco this morning.

“The move comes amid fears of a public health crisis among young people in the US linked to vaping.

“Falling numbers of smokers and increasingly strict rules in developed economies have seen tobacco manufacturers turn their focus to so-called next generation products such as e-cigarettes for future growth.

“What’s being announced across the Atlantic could see those plans go up in smoke, particularly given the size of that market. After all, it’s not just the young who opt for flavoured vaping products.

“On the flipside, it could reduce the competitive threat to the likes of British American Tobacco and its UK-listed rival Imperial Brands from US upstart Juul which has faced criticism for chasing a youthful audience with its marketing.

“And alongside British American Tobacco’s unveiling of 2,000 job cuts, as the business looks to cut out layers of management, is a reaffirmed commitment to reinvest the savings in the expansion of ‘new categories’ of product.

“Today’s announcement represents a bold first step for new chief executive Jack Bowles, but he must hope the crackdown on vaping doesn’t see his growth ambitions run out of puff.”

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.