B&M messes up in Germany and ITV continues recovery story

“Investors are eagerly awaiting a speech from US President Donald Trump on Tuesday that will feature the country’s trade policy. Tariffs have been major influence on the equity markets in 2019 and investors will look for every clue from Trump as to how the trade war with China could play out.

“Ahead of that event, the FTSE 100 nudged up 0.2% to 7,340 thanks to gains from Vodafone and several utility stocks. European markets also saw small gains,” says Russ Mould, Investment Director at AJ Bell.

B&M

“Retailing is a hard business and it requires flawless execution. There is no room for error given intense competition. Very few companies can deliver positive results on a consistent basis and B&M is the latest to trip up.

“It may be pleased with 3.7% like-for-like sales growth in its UK operations but domestic news has been overshadowed by overseas woes.

“German operations aren’t going as planned with this part of the company now under strategic review. It goes to show that having a low price point does not equate to guaranteed earnings success.

“B&M seems to have made a mess of its German business called Jawoll. It looks like poor management decisions with product availability issues, late arrival to stores of seasonal stock and huge markdowns to clear old stock. There have also been large costs incurred on third party warehousing and logistics.

“This looks like a business which has taken its eye off the ball and today’s sharp share price decline is investors’ way of expressing dismay with the performance.

“B&M has another overseas operation in France which it acquired a year ago. Investors will hope that B&M doesn’t also mess things up with these operations like it has done with Jawoll.

“The group’s priority is to learn from what’s gone wrong in Germany and make sure neither the French nor UK operations make the same mistakes.

“It brought in a new German chief executive two years ago and a new trading director joined in February 2018, so one may draw the conclusion they haven’t done a very good job. However in May, B&M blamed earnings growth challenges in Germany on the previous management team, rather than saying the new leaders haven’t delivered.

“B&M would be best getting rid of the German business and sharpening its focus on gaining scale in the UK and France.”

ITV

“Investors appear to be switching on to the merits of free-to-air broadcaster ITV again after a long period when it was out of the picture.

“Today’s third quarter update marks the continuation of a more positive narrative as it follows on from better-than-expected half year results in July.

“Advertising revenue at the top end of expectations was supported by ongoing phenomenon of Love Island and England’s run to the final of the Rugby World Cup, where ITV benefited from being the exclusive broadcaster in the UK.

“The ITV Studios production business is also churning out solid growth. However, in a reminder of how lumpy and unpredictable revenue from this space can be, performance is expected to drop off in 2020.

“The company is hitting targets on cost cutting and the number of viewers signed up to its online player ITV Hub.

“The company’s Britbox joint venture with the BBC is said to have got off to a positive start since its UK launch a few days ago.

“However, with Disney+ launching today in the US and next year in the UK, Apple TV+ recently emerging and plenty of other streaming services already available, this is a very crowded marketplace.

“What is more its competitors have much deeper pockets to acquire original content. Would people, probably already reaching saturation point in terms of TV subscriptions, really pay another £5.99 a month to gain access to classic ITV and BBC shows?

“This question feels particularly acute when you consider that a lot of both parties’ shows are already available on the existing BBC iPlayer and ITV Hub services.”

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