Market movers: Royal Mail, Deliveroo, Tui, Admiral, Aviva

Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting. 

European markets are trading in the red with focus on critical inflation data releases around the world. China’s consumer inflation hit a two-year high, while in contrast, Germany’s annual inflation rate slowed for a second straight month. Focus now shifts to US CPI at lunchtime, which is expected to drop to 8.7% in July from 9.1% in June, which was the strongest reading since 1981 as signs emerge that inflation could be starting to peak stateside.

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The FTSE 100 is trading below resistance at 7,500 with earnings driving price action as Aviva (LSE:AV.) and Admiral Group (LSE:ADM) lead the charge thanks to upbeat results. Meanwhile, Royal Mail (LSE:RMG) is trading sharply lower after it warned of a material full-year loss if strikes take place this month and next.

Deliveroo

Deliveroo (LSE:ROO) reported a first half pre-tax loss of £147 million, widening from a loss of £95 million in the same period last year. The delivery business announced plans to quit the Netherlands, which accounts for 1% of gross transaction value (GTV). Last month, the delivery business cut its full-year GTV growth forecast from 15-25% to 4-12%.

Stay-at-home stocks such as Deliveroo fared extremely well during the pandemic when restaurants and bars were shut and households were forced into lockdown. However, the reopening of the economy combined with stiff competition from the likes of Just Eat and Uber Eats and q-commerce players such as Gorillas and Go Puff, as well as the cost-of-living crisis, have created an extremely challenging environment for Deliveroo. It is being forced to streamline its business by exiting certain countries such as Spain last year and now the Netherlands today. Plus Deliveroo’s IPO in London last year was a PR disaster, detracting investors from buying its shares. Its share price has sunk into double digits, trading in a descending path ever since its flotation with the potential for further losses ahead.”

Tui

Tui reported a third-quarter group loss of 331.2 million euros declining versus a loss of 939.8 million euros year-on-year, while revenue rose to 4.43 billion euros from 650 million euros last year. The travel giant said that it continues to expect a strong summer this year with capacity at 82% of 2019 pre-pandemic levels.

Despite significant year-on-year improvements on the top and bottom line, TUI (LSE:TUI) is dealing with industry-wide challenges that have resulted in significant problems for passengers including delays, flight cancellations and baggage handling issues. This has amounted to disruption costs of 75 million euros in the third quarter, leading Tui to make another quarterly loss and sending shares into the red today.

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Fortunately, there has been supercharged demand for international travel post-pandemic, providing a tailwind for Tui, which remains upbeat, reaffirming its forecast to return to the black for the financial year 2022. The German travel business has also been dealing with changes in the C-suite after its CEO Friedrich Joussen resigned in June after the pandemic wreaked havoc on the business and the wider industry. The company’s CFO Sebastian Ebel will take over at the end of next month at a time when the UK and Germany are heading towards recessions and dealing with cost-of-living crises. However, its relatively low price point business model, which is heavily diversified across the travel industry, means Tui is well positioned versus rivals to take on the macroeconomic challenges.

Admiral

Admiral (LSE:ADM) reported half-year group profit before tax of £251.3 million declining 48% versus £482 million in the same period last year. UK motor insurance profit in the first six months of the year came in at £317.3 million, down from £530.4 million year-on-year. It declared an interim dividend of 60 pence a share with a further special dividend of 45 pence a share, following the sale of its Penguin Portals comparison business.

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The pandemic was a particularly strong period for the industry when empty roads led to a sharp decline in motor accidents and claims, creating tough year-on-year comparables in 2022. However, when measured versus pre-pandemic 2019 earnings, Admiral reported robust profit and customer growth figures, despite the headwinds from inflation. While its domestic business performed well with H1 UK insurance profit up 26% versus 2019, its international insurance business struggled on the back of claims inflation that resulted in a significant loss on its US motor insurance segment. Admiral is far from sheltered from the macro backdrop with inflation, labour shortages and supply chain issues set to continue to be key challenges in the second half of the year.

Aviva

Keith Bowman, investment analyst at interactive investor, said: “Aviva (LSE:AV.) has delivered broadly progressive results with plans for a future share buyback programme the core highlight. Operating profit is up 14% to £829 million, buoyed by a strong performance for annuities and equity release and a 2% reduction in core costs. The measure of capital strength for the company, the Solvency II Coverage Ratio, increased to 213% from 186% and aids a 40% increase to the interim dividend payment. Accompanying management outlook comments point to anticipated higher Bulk Purchase Annuity volumes in the second half with personal lines claims inflation being countered by appropriate policy pricing.

In terms of the share price, a 23% loss year-to-date coming into these latest results compares to a 15% retreat for the FTSE All-World index. In all, geographical diversity has been reduced over recent years following previous business sales, with profits from its insurance operations hindered by factors including rising claims inflation and less favourable weather. General insurance operating profit retreated 11% to £375 million. On the upside, a more focused business has been achieved. Costs are being tackled, while shareholder returns are now buoyed by the prospect of a future share buyback programme, adding to a dividend yield of over 7%. On balance, and with group finances strengthened and greater efficiency still being achieved, analyst consensus opinion points towards a buy.”