Vodafone brings more excitement to telecoms sector, Greggs warns of cost pressures and Made.com hit by cost-of-living crisis

Vodafone

“Four years ago, the telecoms sector was deemed as dull as dishwater, with no sign of any excitement. Since then, we’ve had Vodafone spin off part of its assets as Vantage Towers, Euskaltel bought by Masmovil, BT form a joint venture for its sports arm and attract a strategic investor at the group level, and private equity firm KKR try to buy Telecom Italia,” says Russ Mould, Investment Director at AJ Bell.

“Now Abu Dhabi telecoms group e& has taken a big slice of Vodafone. This comes hot on the heels of talk that activist investor Cevian Capital has also taken a big stake with a view to getting Vodafone to sell some operations, consolidate its position in key markets, return more cash to shareholders and bring more telecoms experience onto the board. Furthermore, there has been chatter that Vodafone was in talks to merge its UK operations with competitor Three UK.

“The infrastructure sector has become hot property in recent years as investors have realised its role in the provision of essential services and the long-term potential for strong cash generation. Valuations have also been cheap among telecom stocks, making it a logical place for various people to plant flags and try and either enforce change or build market scale.

Greggs

“Food on the go firm Greggs must have hoped 2022 would be a positive year marked by the recovery from Covid – with footfall getting back to pre-pandemic levels.

“It’s not shaping up that way and it’s notable how the company is only guiding for full year profit to be a bit ahead of the 2021 outturn.

“The problem facing Greggs is like the one facing lots of businesses – for the first time in a generation inflation is a real factor.

“The cost of raw materials and staff is going up fast and that’s a particular problem for a value-based proposition like Greggs which has limited scope to pass on these costs to consumers if it is to retain its bargain credentials.

“At least the nature of Greggs’ products should offer some insulation from cost-of-living pressures. Spending just over a quid on a sausage roll is the kind of impulsive purchase which people will probably still engage in without thinking twice, unlike buying a new sofa or a new car.

“And this is a well-run operation with a good track record, with a reliable recipe which new CEO Roisin Currie can stick to.

“Innovation in products, such as the ongoing rollout of vegan products, and expanding in areas like home delivery can help build on these robust foundations.

“That said, Currie does face some pressure from some ambitious growth targets unveiled last year and an attempt to temper this guidance can’t be ruled out as the new boss looks to set a bar that she has a reasonable chance of clearing.”

Markets

“There was divergence in the markets at the start of the new trading week, with Asia mostly up and Europe all in the red.

“The FTSE 100 slipped 0.3% to 7,399 as strength among telecoms and energy stocks was offset by weakness in industrials, consumer companies and utilities.

“Perhaps unsurprisingly given a return of Covid problems, China’s economic activity took a hit in April as retail sales and industrial production went through a bad patch.

“Investors don’t care that sofa seller Made.com is outperforming the market given the whole sector is experiencing a sharp decline in trading thanks to the cost-of-living crisis. As far as investors are concerned, Made.com’s earnings expectations have been sharply downgraded which means the stock is far less appealing to own, hence the big share price slump on the news.

“Big ticket items are the first things consumers will delay when the going gets tough, as the idea of shelling out £1,000 or more on a sofa seems excessive when the cost of energy, food, drink and more is racing ahead. Households will have to make their current sofa last a bit longer, and the same applies to other expensive purchases such as electronic goods unless they’re broken and desperately need replacing.

“Made.com’s profit warning coincides with the appointment of new finance boss Patrick Lewis who now has the perfect excuse to have a good look through the cupboards and further reset expectations once he starts next month.

“Another stock taking a big hit on the UK market was patent translation expert RWS, which dived 19% after the collapse of takeover talks. RWS couldn’t be happier judging by the tone of its response to the news. It has a plan to grow and seemingly would rather do this on its own than as part of a private equity empire.”

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