Market movers: Vistry, Darktrace, AB Foods, house prices

Stock markets are broadly higher Thursday and there's news out from a number of popular UK stocks. Our head of investment has the latest.

European markets

European markets have opened higher ahead of the ECB’s rate decision with expectations for a potential 50 or even more aggressive 75 basis point increase.

The FTSE 100 is trading up by almost 0.5% but Associated British Foods (LSE:ABF) has slumped to the bottom of the UK index after a profit warning, dragging other retailers like Next (LSE:NXT) and B&M European Value Retail SA (LSE:BME) down too. Stateside, Wall Street enjoyed a strong rebound with the Nasdaq up more than 2% while the Nikkei in Japan also outperformed.

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Vistry

Vistry Group (LSE:VTY) reported first half adjusted pre-tax profit of £189.9 million and confirmed its full-year guidance for adjusted profit before tax to hit £417 million. Adjusted revenue rose 5.5% year-on-year to £1.3 billion with total completions up 5% to 5,409. It completed its £35 million share buyback in July and announced an interim dividend of 23 pence per share up from 20 pence in 2021. On Monday, Vistry said it plans to acquire rival Countryside Partnerships in a cash and share deal.

This is an upbeat report from Vistry, which is on track to hit its previously stated full-year profit targets and return further cash to shareholders through an increase in its dividend.

However, the housebuilder pointed to the uncertain economic backdrop with rising energy bills leading to cost inflation for the housebuilder of around 8%. So far this year, rising selling prices have offset the increase in its cost base. But if house prices start to slow as interest rates rise and the UK economy softens, margins could get squeezed. Its tie-up with Countryside could help to create notable cost synergies and provide a buffer against a housing market downturn.

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Investors in Vistry have had a tough time lately with the stock down by a third year-to-date and down 10% over the last month.

Darktrace

Darktrace (LSE:DARK) swung from a loss of $34.8 million last year to operating profit of $7.6 million this year. Gross profit rose by 44.4% to $370.6 million on revenues up 45.7%.

The cybersecurity firm confirmed its full-year 2023 expectations. However, it was confirmed this morning that discussions with US tech private equity firm Thoma Bravo had terminated, sending shares sharply lower and reversing last month’s gains. In August, Darktrace shares surged after deal talks were made public with a 12 September deadline set for Thoma Bravo to make a formal offer or walk away.

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The breakdown of deal talks comes as a serious disappoint for Darktrace, which could have been set to privatise and avoid the rest of this year’s equity market volatility. However, the underlying fundamentals of Darktrace’s business are robust with strong demand this year amid a surge in cybersecurity threats.

The company has managed to secure a series of major corporate clients including AB inBev, which has helped to boost the top and bottom lines. It is not unlikely that another international suitor will come to the table and pounce on Darktrace, particularly given the recent slump for sterling.

Associated British Foods

Shares in Associated British Foods (LSE:ABF) have fallen sharply after the company issued a profit warning. The owner of Primark expected adjusted operating profit next year to be lower than this year.

Its food division is performing well with sugar operating profit ahead so far this year, while grocery operating profit is expected to meet expectations. However, its fashion business Primark is struggling amid the market volatility as rising energy costs and a strong dollar weigh on profit margins. Primark is an extremely price sensitive business, so it is difficult to pass on any of the cost increases to consumers through higher prices without impacting sales.

On top of that, its customer segment which typically tends to be lower income consumers have been hit hardest from the pressures of inflation and the cost-of-living crisis, leaving little if any money left over at the end of the month to spend on Primark’s fashion, beauty and homeware offering.

Fortunately, ABF’s diversified business model with food outperforming has helped to offset at least some of the woes facing its Primark segment. However, medium and long term, shares have had a tough ride, down by more than a third year-to-date and down by almost 60% over the last five years. The stock is trading at the bottom of the FTSE 100 today, dragging other price sensitive retailers like Next and B&M down with it.

UK RICS House Price Balance  

The UK RICS residential market survey showed that +53 respondents cited an increase in house prices in August, falling from +62 in July and below analysts’ expectations. This was the weakest reading since January 2021.

Signs are starting to emerge that the housing market is set to cool, despite the chronic supply shortage in the UK. Fears of an upcoming recession, spiralling inflation, rising interest rates and the cost-of-living crisis are starting to impact the housing market with buyers and sellers potentially holding off amid the uncertainty.

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