Must read: FTSE 100, UK house prices, Mitchells & Butlers, GSK, Moonpig

Our head of investment has the morning’s hot news.

GLOBAL MARKETS

European markets are trading mixed with the FTSE 100 outperforming. GSK (LSE:GSK) and Haleon (LSE:HLN) are trading at the top of the UK index after it was spared thousands of lawsuits over its Zantac heartburn drug.

China’s National Health Commission relaxed Covid restrictions further suggesting that the Chinese economy may finally be opening up after strict lockdowns across the country since the start of the pandemic in 2020. Patients with mild symptoms are now allowed to quarantine at home instead of in designated centres, in a notable shift away from its zero-tolerance to Covid approach, which sparked rare protests across major cities and has posed a major threat to China’s economic outlook.

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UK HALIFAX HOUSE PRICE INDEX

UK Halifax house prices growth sharply slowed to 4.7% year-on-year in November. Month-on-month they fell by 2.3% representing the biggest drop since October 2008 and the third straight decline. The average UK property now costs £285,579 versus £292,406 last month with all regions except the North East slowing. 

We are coming off the back of heightened property price inflation, with those upward pressures finally starting to ease as a result of rising mortgage rates, a looming recession and the cost-of-living crisis. However, limiting this to some extent is the chronic shortage of housing supply in the UK economy, that is stemming sharper declines.

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Many potential house buyers are waiting for mortgage rates to ease and house prices to soften further into next year before restarting their property searches. The chaos around the mini-budget, which sent mortgage rates soaring, has also put off potential buyers, who are still hoping that mortgage rates could become more affordable from here.

In terms of regions, the North East of England is the only region to still be enjoying double digit house price inflation. Meanwhile, London is lagging other regions, with house prices up 5.2%, however property prices in the capital are still sharply above the UK average

MITCHELLS AND BUTLERS

Mitchells & Butlers (LSE:MAB) said full-year operating profit hit £124 million versus £81 million last year, sending shares sharply higher. Pre-tax profit hit £8 million swinging from a loss of £42 million year-on-year. The group behind All Bar One, Harvester and Toby Carvery said the trading environment remains highly challenging with cost inflation putting pressure on margins. However it said the new fiscal year had so far been encouraging with 10-week like-for-like sales since year-end in September up 6.5% year-on-year and up 9.2% since 2019 before the pandemic.

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2022 was meant to be the post-pandemic year when the economic reopening stocks including pubs such as Mitchells and Butlers thrived. However the bull market uptrend for the stock in late 2020 and early 2021 came to an end last March last year with shares under pressure ever since. The revival of inflation has sharply added to Mitchells and Butlers cost base from wages to food and drinks. On top of that, the hospitality group has been facing headwinds from April’s jump in VAT from 12.5% to 20%, very hot weather and industrial action such as the train strikes. However, the group has enjoyed a recovery in city sites this year with people returning to offices and city centres although some areas of London such as in the City have remained subdued.

This year many pubs and restaurants have been forced to close given the post-pandemic pressures from inflation and the difficulties obtaining staff and remaining profitable. Mitchells and Butlers is arguably well positioned to benefit from the reduction in competition and consolidating landscape.

GSK

Shares in GSK are trading sharply higher after a US ruling spared the drugmaker of thousands of lawsuits alleging that heartburn drug Zantac was carcinogenic. GSK said it will continue to defend itself vigorously and said the scientific consensus is that there is no consistent or reliable evidence that ranitidine increases the risk of any cancer.

This comes as a major relief to GSK and other drugmakers such as Sanofi SA (EURONEXT:SAN)i with shares trading sharply higher. The Zantac litigation has been a major overhang on the stock for some time with GSK shares set for their biggest one-day gain 1998.

GSK as a defensive play looks relatively well positioned to weather the economic downturn ahead. It has already raised its guidance twice in six months with strong sales and earnings topping forecasts in the third quarter, which it reported in November. GSK’s consumer healthcare spin-off Haleon has also allowed the drugmaker to become more streamlined and laser focused on pharmaceutical developments.”

MOONPIG

Moonpig Group Ordinary Shares (LSE:MOON) has downgraded its full-year revenue forecast to £320 million from £350 million, sending shares down by more than 15%. Meanwhile, it reported first half revenue to £143 million and pre-tax profit of £9.1 million versus £18.7 million year-on-year.

Moonpig’s UK card orders have been negatively impacted by Royal Mail workers’ industrial action that has caused delays to the postal service and deterred customers from placing orders. Moonpig has also been suffering from the fading pandemic-era boom in online deliveries including greetings cards, resulting in a halving of its pre-tax earnings year-on-year.

Concerns about the cost-of-living crisis, squeezed household budgets and rampant inflation have dampened investor appetite for Moonpig with shares slumping 66% so far this year. Moonpig was previously trying to upsell, pushing higher margin bolt-on products such as soft toys, champagne, flowers and chocolates, but it is now refocusing on its bread and butter, greetings cards instead to navigate the economic downturn. This year has seen a series of analyst price target cuts on the stock as optimism fades from the analyst community.

Consumers are becoming increasingly price sensitive given the macroeconomic backdrop of a looming recession, falling real wages and with consumer confidence near record lows. As a result, bargain hunting has led to weaker demand for Moonpig cards as customers look for cheaper alternatives.