Pound drops on rate cut fear, William Hill bounces back and City Pub Group serves up a menu of excuses

“The pound has dropped 0.5% to $1.2996 as markets start to weigh up the prospect of a potential rate cut in the UK. Weekend press reports suggest a growing number of Bank of England policymakers are considering voting for a rate cut so as to try and stimulate the economy.

“That’s put a dent in the share prices of banks such as Lloyds, down 0.7%, and Royal Bank of Scotland which fell 0.5%.

“Utility stocks were in demand following reports of takeover interest in recycling firm Viridor, owned by Pennon. Centrica was the top riser, up 2.7%, as it has numerous assets up for sale.

“Elsewhere on the markets, European and Asian shares were mostly in positive territory including a 1.1% advance from Hong Kong’s Hang Seng index,” says Russ Mould, Investment Director at AJ Bell.

William Hill

“Relatively new chief executive Ulrik Bengtsson appears to be working some magic at William Hill as the company says earnings will beat expectations thanks to favourable sports results.

“After a long, difficult period, William Hill seems to be getting its UK retail estate in order, improving its UK online business and enjoying ongoing success in the US. The latest update shows that the international online operations still need more work.

“The betting industry is going through an unprecedented period of regulatory clampdown as governments around the world seek to have more responsible gambling. Navigating these challenges is a big job in itself, let alone trying to grow the business.

“So far Bengtsson appears to have a strong grip on what’s required to make William Hill prosper. He’s already made personnel changes and one shouldn’t rule out further shake-up of senior roles as the business readies itself for the next phase of its life.

“Since taking the top job in September, Bengtsson has already hired a new chief technology and product officer, as well as introducing a new role of chief operating officer. It is natural for a new CEO to want to bring in some fresh faces to support their work and so it therefore doesn’t come as a surprise that chief financial officer Ruth Prior is leaving the company.

“Bengtsson’s vision is for William Hill to be a geographically-diversified business with a strong emphasis on technology to deliver a wide range of betting products and a more personalised customer experience.

“As part of that strategy, the US is seen as a key territory for future earnings growth. Recent progress has been very good with guidance now for the business to have broken even in the 2019 financial year, versus analyst forecasts for a £16 million loss.

“Taking that part of the business into profit will be the next important stage in the company’s revitalisation efforts.”

City Pub Group

“When it comes to factors to blame for weak performance pubs operator City Pub Group seems to have decided more, not less, is more.

“Today’s profit warning reads like an attempt to play excuse bingo. The weather, check; the impact (or lack thereof) of a major sporting event, check; Brexit, check; the trains, check; delayed refurbishments, check.

“The ultimate result, and what shareholders will really care about, is that 2019 earnings will fall short of expectations, albeit only by a bit.

“Double-digit increases in sales and profit reflect the expansion of the company’s estate, but on a like-for-like basis growth was significantly more modest.

“City Pub is pitched at the higher end of the market and if people are feeling a bit nervous about their money, they might be less likely to frequent somewhere they have to pay up for premium-priced drinks.

“If, as the company says, trading conditions have gone back to normal then investors will expect to see evidence of an improved showing when the company announces its results in full in the spring.

“Management are not sitting on their hands, marketing two underperforming sites for disposal, ‘refocusing’ on margins and continuing the roll-out of new sites. It is also interesting to note that acquisitions are not being ruled out.”

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.