FTSE 100 Reckitt lifts sales forecasts, Whitbread recovery gathers pace but warns on staffing

“The FTSE 100 made a strong start on Tuesday, lifted by some strong corporate updates and as investors reacted to the fresh records set on Wall Street overnight,” says AJ Bell Investment Director Russ Mould.

“The sharp falls seen in September when the index fell below the 7,000 mark are starting to recede into the distance. However, investors will remain wary given the ongoing risks around Covid, inflation and a slowing recovery.

“Strong corporate results are helping with sentiment. Tomorrow’s Budget in the UK and Thursday’s European Central Bank meeting may help return the wider economy to the forefront of investors’ minds. Whether this will be supportive or have a negative impact on markets remains to be seen.”

Reckitt Benckiser

“There’s a lot to like in this morning’s update from Reckitt Benckiser. There is a notable hike in sales forecasts, impressively, every division has outperformed expectations and the company has maintained margin guidance despite the inflationary pressures and supply chain issues which it, like all of its peer group are facing.

“This is testament both to the strength of its brands which have allowed the company to pass through price increases to its customers and to the ongoing transformation of the businesses under CEO Laxman Narasimhan.

“Reckitt’s focus on health and hygiene products meant it was an early pandemic winner but investors turned away from the stock thanks to patchy performance and the perception that sales growth in these categories wouldn’t be sustained.

“However, the sale of its troubled Chinese infant formula business along with wider operational efficiencies has helped address Reckitt’s uneven performance.

“Health and hygiene sales are also proving stickier than expected as it becomes clear we’re going to be living with the virus for longer than some anticipated when successful vaccines were first developed.

“And increased mixing has also had the inevitable knock-on effect of meaning we need to reach for those cold and flu over-the-counter remedies.”

Whitbread

“Wage inflation is definitely going to be a factor at Premier Inn owner Whitbread. The company is a victim of the mounting labour shortages in the UK hospitality sector which mean it is going to have bump up pay significantly and pay out bonuses to attract enough staff to keep things ticking over.

“This explains why Whitbread is unable to offer a timescale on a return to pre-pandemic margins even if it is confident it will get there eventually. At least the company has a strong balance sheet to help it meet staffing and supply chain challenges.

“The upwards pressure on wages is the main black mark in an otherwise encouraging set of first half results from Whitbread. Some kind of rebound from the previous Covid-impacted performance was inevitable but what is more telling is that the company is recovering ahead of the wider market.

“This suggests the Premier Inn brand is resonating with domestic leisure travellers and that the company is taking market share. The exit of weaker peers from the market and constrained investment at some of its rivals should further bolster Whitbread’s position.

“In August sales were even up double digits on 2019 figures, with the company benefiting from the staycation boom as restrictions limited foreign travel. Such helpful conditions will not persist indefinitely.

“The German business is a key part of Whitbread’s growth plan and the company will be encouraged that, while occupancy levels are lagging the UK, the trend is an improving one. The company’s continued roll-out of new sites in Germany demonstrates its continued commitment to this part of the strategy.”

These articles are for information purposes only and are not a personal recommendation or advice.