Whitbread finds life tough in the regions, and Pearson is bottom of the class again

“The US/China initial trade deal may have given US stocks a lift last night, but there is very little movement in Asia and Europe on Thursday,” says Russ Mould, Investment Director at AJ Bell.

“Investors seem to feel there is still unfinished business to resolve and so the markets are likely to remain volatile until phase two negotiations are concluded.

“On the UK market, pharmaceutical and tobacco stocks gave up some of their recent gains while investors were bidding up retailers including Primark owner Associated British Foods and Sainsbury’s."

Whitbread

“The regional market continues to be very tough for Whitbread, with its third quarter update extending the negative trend seen in the first-half period.

“Fortunately for the business, demand for its Premier Inn hotels in London is helping to offset some of the regional slack, meaning the pace of decline in Whitbread’s overall accommodation sales on a like-for-like basis is slowing down at 2.1% in Q3 versus a 3.6% decline in the first half of its financial year.

“Weak demand from business travel has been one of the big problems for Whitbread in terms of its regional hotels. To fix this situation it really needs the UK economy to pick up and more business investment across the country.

“Against this difficult backdrop, Whitbread continues to keep its eye on the longer-term prize. Running a hotel chain is about planting flags in the right location and keeping the price point attractive to the target market, as well as offering an experience which makes the customer want to come back again and again.

“While market conditions may be weak at the moment, in a year or so the story could be very different so Whitbread isn’t going to stop expanding now just because trading isn’t great.

“Its story is also one of overseas expansion where Germany is the prime focal point. This is a loss-making operation at present, with Whitbread still establishing its presence.”

Pearson

“The reaction to academic publishing firm Pearson’s update this morning proved the old adage that it’s often better to travel than to arrive when it comes to investing. Having risen sharply yesterday in anticipation of the release the shares are now firmly on the back foot.

“The statement is being marked as a failure by investors. Although things aren’t getting much worse, the company still faces the problem which has proved its undoing over several years.

“Fundamentally US students are not buying as many expensive academic textbooks, instead using eBooks and online journals. And Pearson’s own digital business isn’t growing fast enough to make up the shortfall.

“Things don’t look likely to get any better here this year based on the company’s outlook comments. Cost cutting helped to mitigate the impact on profit in 2019 and the company may find it difficult to repeat that trick this year.

“The separately announced news that chief financial officer Coram Williams is joining current CEO John Fallon in leaving the business in 2020 is something of a double-edged sword.

“While a fresh approach to running the business might be welcome, it could also result in a loss of momentum in the transformation of the group.”

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.