FTSE slumps, JD Sports holds firm, Rolls-Royce’s good news ignored, and BT agrees sport venture

“The FTSE 100 tumbled after weak UK GDP numbers and higher than expected US inflation figures stoked fears about a global economic slowdown. Investors were quick to dump commodity producers on the grounds that demand could fall in the coming months,” says Russ Mould, Investment Director at AJ Bell.

“Tech-heavy Scottish Mortgage Investment Trust was beaten up as investors feared portfolio company valuations would be worth less based on discounted cash flow models because of rising interest rates. Once seen as a superstar vehicle for the world’s next big things in the world of business, Scottish Mortgage has lost its shine big time. Its share price is down 43% year-to-date and has more than halved in value since last November’s peak.

“Another stock that’s gone from hero to halfway to zero is JD Sports, whose share price is down 44% so far this year. In recent years the company had been rated at the top of its game, with must-have trainers and smart stores that encourage customers to keep coming back for more.

“Sentiment towards JD has soured this year due to worries about consumer spending. JD’s latest trading update implies it is holding up well in a difficult market, but that wasn’t enough to win over investors, with the share price only nudging up 2% on the news.

“Another stock struggling to get a break is Rolls-Royce whose shares refused to budge despite a reassuring trading update. Ongoing recovery in the aviation sector and better prospects for defence services would normally be a reason to celebrate yet Rolls-Royce is fighting a weak market where investor sentiment is poor. It would take a barrage of good news to trigger a strong share price rise in the current environment.

“The FTSE 100 bade farewell to plumbing supplies group Ferguson which has now switched its primary stock market listing to the US. The change in listing category for the UK means it no longer qualifies for the FTSE indices and so the blue-chip index loses yet another long-standing name.”

BT

“Brave experiment or overly ambitious folly? BT’s participation in the sports rights battle has moved to a new phase as it completes its joint venture with Warner Bros. Discovery.

“BT entered the fray in 2012 by securing rights to Premier League matches and really made a splash a year later by capturing Champions League and Europa League games from under the nose of Sky.

“The promise of top-level sports action was seen as a way of securing subscribers for its wider TV and broadband services.

“While this strategy may have enjoyed some success it involved hefty costs for a company which already had plenty of other demands on its cash flow and balance sheet, including upgrading infrastructure and paying out dividends.

“The shares are up around 40% in the 10 years since BT Sport’s launch was announced, roughly in line with the FTSE All-Share over the same timeframe but growth in the dividend dried up before the company suspended payouts during the pandemic.

“Sports rights are highly prized as events such as football are one of the few areas guaranteed to attract to attract ‘live’ viewers as opposed to people watching via catch-up. Therefore, having a partner with deeper pockets to help fund the cost of securing rights as well as adding Discovery’s existing Eurosports channel to the mix looks an attractive combination.

“The results which accompanied news of the tie-up were solid enough – crucially customers seem to be sticking with BT despite the cost-of-living crisis and the company has made decent progress on the roll-out of 5G. The dividend is also in line with what was promised, and free cash flow is, critically, better than expected.

“BT still has plenty of issues to deal with, not least the complex and costly investment in broadband infrastructure and a big pension deficit, but at least it seems to be laying the platform to address these challenges.”

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