Interactive Investor

Must read: FTSE 100, JD Sports, Mitchells & Butlers, UBS

17th May 2023 08:51

by Victoria Scholar from interactive investor

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Our head of investment rounds up the morning's big news.

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GLOBAL MARKETS 

The FTSE 100 is under pressure amid wider weakness across Europe, extending losses after yesterday’s decline. Sage Group (The) (LSE:SGE) is at the top of the FTSE 100, while Experian (LSE:EXPN) is at the bottom, both after corporate updates.

The Bank of England governor Andrew Bailey will give a speech at the British Chambers of Commerce global annual conference in London today.

JD SPORTS 

JD Sports Fashion (LSE:JD.) reported full-year profit before tax of £440.9 million, down from £654.7 million in 2022, weighing on its share price today. 

Revenue grew to £10.12 billion versus £8.56 billion in 2022 and it expects group headline profit before tax and adjusted items for this year to meet consensus expectations of £1.03 billion. CEO Regis Schultz said he expects further small price increases this year, with selling prices up 5-10% versus last year. 

JD Sports has been carrying out some significant changes such as the appointment of a new CFO Dominic Platt and the acquisition of trainers retailer Courir to accelerate its growth strategy. It has ambitious growth plans including plans to spend £500-600 million on store expansion per year. It is also targeting double-digit revenue growth and operating margins.

In the face of the cost-of-living crisis and cost inflation pressures, JD Sports, which describes itself as the ‘King of Trainers’, is defying the doom-and-gloom. It's on track to see earnings top £1 billion for the first time this year as its collection of sports fashion clothing and shoes including brands like Nike, adidas and Puma, continues to chime with consumers. 

Shares in JD Sports have performed very well so far in 2023, rallying over 27%, sharply outperforming the FTSE 100. However, shares are under pressure today after earnings fell versus last year.

MITCHELLS & BUTLERS

Mitchells & Butlers (LSE:MAB) reported adjusted earnings of £100 million for the half year ended 8 April, down from £120 million year-on-year and cash flow fell from £22 million to £10 million. However, total sales hit £1.282 billion, growing 10.6% versus the same period in 2022. The restaurants and pubs group behind brands like Harvester, Toby Carvery and All Bar One said ‘costs remain a challenge’ but the ‘outlook is now improving’. 

Mitchells & Butlers has been grappling with a softening consumer, which has negatively impacted disposable income as well as inflation cost pressures from energy, wages, food and drink, which are squeezing margins. However, energy prices have started to come down and the recent Easter weekend provided a boost to demand. 

After shares came under pressure between April 2021 and October 2022 following the mini-budget chaos, the stock has been recovering off the lows. As pandemic-era headwinds shift to the rear-view mirror and hopes grow that inflation will ease this year, Mitchells & Butlers has been staging a recovery. The stock has rallied by more than 40% over the past six months but is under pressure today after earnings fell year-on-year.

UBS 

UBS Group AG (SIX:UBSG) estimates that its merger with Credit Suisse will create a one-off ‘negative goodwill’ of $34.8 billion as of the end of 2022, which is expected to boost profits this quarter thanks to the accounting gain. 

However, it is also expecting higher legal costs which could amount to $4 billion over 12 months and a $13 billion hit from asset and liabilities adjustments in the group, amounting to a total hit of $17 billion from the deal. 

This is according to a UBS regulatory finding in Switzerland which said that Credit Suisse faces a number of restrictions around its business until the takeover completes. 

In March, UBS agreed to a $3.4 billion government supported arranged marriage with its cross-town rival in response to existential concerns over the future of Credit Suisse following a raft of scandals, financial woes, and deposit outflows. UBS said it was rushed into the rescue deal with only a few days to carry out due diligence. 

Shares in UBS have been under pressure since the deal was announced in March.

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