FTSE 100 takes step back as oil falls, Bloomsbury shines, cracks appear in Frasers’ luxury division amid wider sector issues, GameStop still losing money and Vertu warns on used car market

“The FTSE 100 took a step back on Thursday amid weak trading in the US and China as some of the excitement about a pivot from central banks dampens down,” says AJ Bell Investment Director Russ Mould.

“US jobs numbers tomorrow and central bank meetings next week could inform the market if it has got carried away with the level of rate cuts which are now being priced in for 2024. Oil prices continued to slump as oil exports from the US surge. A weaker crude market should at least help on the inflation front but it is not good news for two of the FTSE 100’s heavyweights: BP and Shell.

“Harry Potter publisher Bloomsbury continues to enjoy some market stardust as it flags profits materially ahead of expectations. The company is a rare example of a pandemic winner which has kept on winning amid a return to a new normal.

“The shares have more than doubled from their Covid sell-off lows as lockdown drove a reading revival. Bloomsbury is no longer a one-trick pony, with Harry Potter part of a wider portfolio of titles which is particularly strong in the fantasy genre.

“Specialist media outfit Future saw a startling 25% fall in its share price after full year results as it saw a significant slowdown in the US. For a period, the company consistently beat expectations as it pursued a strategy based on buying up undervalued magazine titles and bringing them onto a centralised e-commerce and online publishing platform. However, there have always been some doubts about the model with the group proving a victim of short-selling attacks in the past.

“A wave of cost cuts is planned but the accompanying news of the departure of chief financial officer Penny Ladkin-Brand, after eight years at the business, will do little to reassure shareholders.”

Frasers / Watches of Switzerland

“Frasers’ quest to dominate the athleisure and sporting equipment market appears to be going to plan when you look at the headline figures.

“Its half-year results show decent progress thanks to solid gains from Sports Direct. The company attributes some of its success to bringing in new brands including The North Face and On Running.

“But look under the bonnet and not everything is ticking over smoothly. One fifth of its sales come from its ‘premium lifestyle’ segment. If you exclude acquisitions and disposals, revenue for that division fell by 11.2% in the half-year period.

“Many companies in the luxury market have talked about softer demand in recent months and Frasers has now joined the club.

“Wealthier individuals are being more cautious with their spending and this is sending shockwaves across the luxury sector which has, up until recently, merrily chugged along.

“Normally in a softer market Frasers would reach for its fluorescent banners and start slashing prices to shift goods. But that strategy won’t work for the premium market. Discounting is the last thing anyone wants to do from a reputational perspective.

“Watches of Switzerland warned about a slowdown in growth earlier this year and its latest results include a warning that the UK consumer environment continues to be ‘challenging’. That will put pressure on its sales team to be more persuasive when a prospective customer comes into one of its showrooms.”

Gamestop

“Falling sales, another quarter of losses and refusal by management to hold a conference call to discuss the results, it’s hard to understand why investors still cling on to hope for GameStop. The only saving grace is its large cash pile (including marketable securities), currently sitting at $1.21 billion.

“Fundamentally the business needs a radical rethink. GameStop faces intense competition from the likes of Amazon and Ebay, and it needs to make its large store estate more appealing, which could cost a significant amount of money, as well as slim down and drastically reduce its overheads.

“The meme stock craze two years ago and subsequent bursting of the bubble has tarnished GameStop’s brand, albeit it was already damaged in the first place. It is considered a company on its last legs by many people which means its turnaround plan could be hard to achieve.

“GameStop wants to have a greater emphasis on higher margin products, operate more nimbly, extend its reach to more products than simply computer games, and have speedy delivery to customers. On paper that makes sense, but it’s much harder to achieve when the brand is a laughing stock.”

Vertu Motors

“Car seller Vertu Motors is firmly in reverse gear after a profit warning which has much wider ramifications.

“If Vertu is to be believed the company is very much a victim of circumstance rather than being the author of its own misfortune. The material change in the used vehicle market it is pointing to will send a chill through the bones of investors in its rivals – with wholesale values falling significantly over the last two months.

“And worse, Vertu doesn’t think things are going to get better on this score any time soon. Some of this is down to higher supply – an issue you would expect to even out over time – but higher interest rates making car finance options less affordable and high vehicle prices are also an issue.

“This is not just a problem for the car market. The impact of higher rates continues to hit households in a steady trickle as they remortgage or move on to a new finance agreement for their vehicle, for example.

“This lagged impact means appetite for big ticket purchases is likely to be pressured for some time to come and could make Vertu’s road to recovery a bumpy one.”

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