Must read: FTSE 100 rally, house prices, Ocado, Rentokil, IWG

There are plenty of ups and downs in the market today, although there are certainly more buyers than sellers in early deals. Our head of investment analyses the big news.

GLOBAL MARKETS 

European markets have started November on a positive note despite weakness into the close last night on Wall Street. Asian markets staged strong gains overnight with the Hang Seng in Hong Kong surging more than 5% but it still languishing around 2009 lows. In Australia, the Reserve Bank Of Australia hiked interest rates by 25 basis points, as expected, lifting the Aussie dollar against the greenback. 

The FTSE 100 is trading higher, extending gains after closing Monday at a five-week high thanks to the drop in sterling which boosted London-listed dollar earners. Ocado Group (LSE:OCDO) is surging 15%, trading at the top of the FTSE 100, buoyed by optimism towards its new partnership with Lotte in South Korea.

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Meanwhile traders are selling Rentokil Initial (LSE:RTO) which is one of just a few stocks in the red on the UK index today following a third-quarter trading update that failed to inspire investors. 

Focus on earnings stateside continues with results from Uber Technologies Inc (NYSE:UBER) out later today, while central banks take centre stage with the Federal Reserve and Bank of England both anticipated to raise rates by 75 basis points on Wednesday and Thursday respectively.

The dollar index staged its worst month since May with losses continuing this morning as investors anticipate that the Fed’s pace of tightening could be set to slow beyond this week. 

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NATIONWIDE HOUSE PRICE INDEX 

UK Nationwide house prices fell by 0.9% in October month-on-month versus zero growth for September. House prices grew by 7.2% year-on-year falling short of analysts’ expectations and dropping from the prior month’s reading of 9.5%. 

This is a significant miss both in terms of the month-on-month figure and the year-on-year number, with monthly house price growth falling into negative territory. The fallout from the mini-budget exacerbated existing pressures from the Bank of England’s rate hiking path to send mortgage rates soaring, sharply dampening demand for UK houses and punishing property prices. On top of that, the market is dealing with a weakening consumer as the cost-of-living crisis squeezes household budgets as well as the looming threat of recession. 

The Nationwide house price figure is now significantly below the official UK inflation rate, suggesting that the economic and political uncertainty of recent weeks have had a major negative impact on the market. Many potential first-time buyers in particular are getting priced out of the market given the surge in borrowing costs, while international investors in UK property are holding off until political stability is restored, and mortgage premiums ease off.

RENTOKIL 

Rentokil reported group ongoing revenue in pest control up 12.6%, in line with the first half, while organic revenue grew by 5%. North America pest control lagged behind, growing by 3.5% down from 9.8% last year, while disinfection services also slowed coming in at £3.6 million down by £8.6 million year-on-year.

Rentokil acquired 12 pest control businesses during the quarter with annualised revenues of £26.7 million, including the closure of its Terminix transaction. Rentokil maintained its full-year outlook and said its $20-25 million cost synergy programme is progressing well. 

Given the essential nature of Rentokil’s services, the company is relatively well positioned to weather an economic downturn. As expected, its disinfection services are underperforming during the post-pandemic period given the tough comparables versus the Covid era when there was supercharged demand for hygiene-related products. North America pest control has also been struggling also on the back of difficult year-on-year comparables. 

Rentokil has been able to offset some of the pressures from inflation by passing on additional costs to consumers through higher prices, which is helping to boost revenue. On top of that, the business is focusing on cutting costs in order to support margins. 

Shares in Rentokil have performed well lately, rallying by more than 11% over the last month, making it one of the top performing stocks on the FTSE 100 in October. However, it is giving back some of those gains this morning.

OCADO 

Ocado has agreed a partnership with Lotte Shopping, allowing the supermarket technology business to expand with the development of Customer Fulfilment Centres across South Korea, lifting shares to the top of the FTSE 100.

Following Ocado’s deals with Kroger in the United States and Casino in France, this is another chance for Ocado to expand into a major market, the fourth-largest economy in Asia. 

This is a smart opportunistic move from Ocado that will allow the business to gain a foothold in an important growing economy. The tech business will be able to generate fees from Lotte during the development phase and fees linked to sales as well, which will likely be revenue accretive. The tie-up will also help Lotte to expand its delivery business with Ocado’s robotic warehouse technology. 

However, investors in Ocado have had a tough time, with the stock the worst performing company on the FTSE 100 over a one-year period, shedding nearly 70% even after today’s bounce. The share price decline reflects its lack of growth, dividend and profitability which have seen investors shift away from the stock. 

The big question is whether Ocado’s partnerships can turn it into a profitable business that returns cash to shareholders. This time last year its valuation reflected that of a high-growth tech business. However, given its ongoing struggles with profitability, the shift in preference among investors away from technology as well as the cost-of-living crisis that is squeezing consumers, Ocado’s share price has fallen drastically. This morning’s positive share price reaction will come as a welcome reprieve for loyal investors.

IWG 

IWG is forecasting full-year adjusted core profit to come in towards the lower end market expectations for £304-380 million sending shares lower this morning. Investors appear to be shrugging off its 25% revenue growth year-on-year. 

The global leader in hybrid workspace is struggling with the structural decline in demand for office space post-pandemic. Covid-19 expedited an existing trend which was the shift away from office working towards working-from-home and hybrid working arrangements. Commercial property has struggled drastically, while many households have been looking for bigger flats and houses to accommodate a home office outside of big cities like London. Like many businesses IWG has also been struggling with the macroeconomic headwinds including a slowing UK economic outlook plus rising inflation, which is sharply increasing costs. 

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IWG had an extremely difficult time during the pandemic, but shares have now pushed below their 2020 low as the recovery at the end of 2020 and the beginning of 2021 proved to be short-lived. The stock has been under pressure since April last year with shares slumping around 60% over the last year.