FTSE 100 flat after big falls, Frasers ups stake in Boohoo, Sainsbury’s to exit banking, Flutter shrugs off sporting results hit, Currys lifts earnings guidance and Watches of Switzerland smashed by festive flop

“The FTSE 100 stabilised after falling on yesterday’s nasty inflation surprise and weak Chinese growth figures,” says AJ Bell Investment Director Russ Mould.

“When you add in a tight jobs market, strong US retail sales and hawkish central bank commentary it’s no surprise markets are becoming less confident about the narrative of near-term rate cuts.

“On a busy day for corporate news, Mike Ashley-controlled Frasers upped its stake in Boohoo – whether this move will translate into anything more than brand collaboration remains to be seen but this latest stake building will do nothing to dull the speculation. The fast fashion play looks vulnerable with the shares trading at a fraction of highs seen three years ago.”

Sainsbury's

“The writing has been on the wall for Sainsbury’s banking operations for some time. With the company openly saying that it has a ‘food first’ strategy, everything else in the business has played second fiddle in recent years.

“Running a banking business does not fit with the new strategic focus and so it is no surprise to see Sainsbury’s confirm it will withdraw from this service. Instead, it is expected to follow the same model as its insurance products by offering financial services via third parties.

“Tesco is also rumoured to be entertaining bidders for its banking arm as it too undergoes a strategic rethink. Over the past two decades, supermarkets saw an opportunity to make more money off their customers than by simply selling food and drink. During this time we’ve seen various ventures in mobile phones, broadband, energy, garden centres, coffee shops, restaurants, bakeries and more alongside the provision of core financial services.

“A lot of these ventures have since been sold on to third parties as the supermarkets go back to their bread and butter, and it feels as if we’re now in a new wave of this movement given actions by Sainsbury’s and potentially Tesco.

“The next question investors will ask is whether Sainsbury’s will look to sell Argos given disappointing general merchandise sales of late and this also being non-core to its food-first strategic focus. The banking announcement refers to a clear focus ‘on our retail businesses’ rather than simply saying groceries, and so one could deduce that Argos is safe for now. But there will almost certainly be serious questions about its future if it continues to be a drag on the group.”

Flutter Entertainment

“Excitement about the company’s imminent US stock market listing and commentary around continued momentum in the business allowed investors to look past a hit from customer-friendly sporting results in the US at Flutter Entertainment.

“While the bookie usually wins in the end, the market can probably expect that over a single quarter it can have a bad run. The need to engage in higher promotional activity is potentially more of a concern – although not something which is keeping shareholders up at night just yet.

“The hope will be the company, whose strategy is heavily oriented to capitalising on an emerging opportunity in the US, can attract a higher valuation off the back of its US listing. The legalisation of sports betting across much of the US has created a huge new market which many UK bookmakers are looking to tap into, to varying degrees of success.

“Flutter has done this as effectively as any of them and its FanDuel business is enjoying particularly eye-catching growth.”

Currys

“Electronics retailer Currys may still be experiencing a decline in sales but the increase in earnings guidance reflects how the company’s successful push on services is paying off.

“There are plenty of places people can buy a TV, laptop, phone or tablet, but where Currys is looking to make itself stand out is by providing support to customers who are not necessarily that tech savvy.

“Currys can offer a range of services including everything from customer credit to installation services, repairs and recycling and the growth in this part of the business suggests there is genuine appetite for this support.

“This activity is higher margin and also helps make revenue and earnings more predictable, as well as underpinning cash flow generation. This should support a stronger balance sheet with the disposal of the Greek operations expected to pull the company into a net cash position.

“The services part of the business is likely to play an increasingly important role. After benefiting from the pandemic-induced pull-forward of spend on TVs, laptops, printers and household appliances, the post-Covid backdrop has been tougher for Currys. Difficult trading in its previously reliable Nordics business also hasn’t helped. Though the picture is slowly improving here.”

Watches of Switzerland

“Few people sat round an open fire and exchanged Christmas gifts that included a fancy watch, judging by one of the leading timepiece sellers. Watches of Switzerland continues to suffer from the downturn in the luxury goods market and a nice Rolex or fancy Omega were not in Santa’s sleigh a month ago.

“Retail trends indicate consumers have prioritised experiences such as foreign holidays over big-ticket items in recent months and that has meant fewer people have given Watches of Switzerland the time of day. This has extended problems for the company which emerged last year where sales growth slowed and the watch market was flooded with second-hand timepieces, weighing on prices.

“Watches of Switzerland then saw another leg down in its share price after Rolex bought one of its rivals, Bucherer, and investors feared that would give it a direct-to-consumer sales channel. Watches of Switzerland fought back, insisting it would still play a vital role in the distribution of Rolex products, but investors weren’t so sure.

“The shares are now trading at their lowest level since November 2020 as the market has turned sceptical over the company’s ability to keep growing at the rapid clip seen during the pandemic. The luxury goods market has taken a beating over the past few months as wealthier individuals’ spending habits changed, implying that even the rich aren’t immune from higher interest rates.

“For example, De Beers has cut diamond prices to try and revive sales, and Burberry has been struggling to push through big price increases as consumers seem less willing to pay up. Watches of Switzerland is part of this club and beyond running big discounts, which is the last resort for a luxury retailer, there isn’t a lot it can do until market conditions change.”

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