Must read: FTSE 100, UK inflation, Pearson, WH Smith, Just Eat
18th January 2023 09:12
Markets are mixed Wednesday, but there are some big movers and new data to digest. Our head of investment has the latest.
GLOBAL MARKETS
European markets have opened mostly higher with the DAX in Germany lagging behind. On the FTSE 100 index, Ocado Group (LSE:OCDO) is attempting to climb back after yesterday’s slide, while inflation-sensitive businesses like International Consolidated Airlines Group SA (LSE:IAG), British Land Co (LSE:BLND) and Rightmove (LSE:RMV) are trading near the top of the index after UK inflation figures eased for the second straight month. The FTSE 100 has started the year strong, rallying almost 4% since the start of January, inching closer to its all-time high.
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The Bank of Japan stuck to its yield curve control policy, defying speculation that the central bank could put an end to its era of rock bottom interest rates. This sent the Japanese yen sharply lower overnight with USDJPY currently trading up 1.3%. Weakness for the currency spurred gains for the Japanese stock market, with the Nikkei up 2.5%, sharply outperforming wider markets across Asia.
US futures are pointing mostly higher after a mixed close on Wall Street last night, with The Goldman Sachs Group Inc (NYSE:GS) dragging on the Dow after the bank reported disappointing quarterly earnings, with particular weakness in its investment bank after a difficult year for dealmaking.
UK INFLATION
UK inflation hit 10.5% in December, in line with expectations but falling for the second straight month after hitting the highest since 1981 in October. The largest downward contributions came from motor fuels, clothing and footwear. Offsetting this to some extent, were price rises for food, coach and air fares and hotels.
Inflation has started to ease as Europe diversifies away from Russian energy and as the global economy cools, dampening demand for goods and services and in turn easing price pressures. The Bank of England looks set to continue with its rate hiking path, albeit at a more moderate pace with interest rates likely to peak later this year somewhere around 4.5%.
PEARSON
Pearson (LSE:PSON) said it expects an 11% jump in full-year adjusted operating profit to around £455 million while underlying sales are also expected to rise by 5%. The education publisher said it is on track to delivery approximately £120 million of cost efficiencies in 2023.
Pearson has successfully been laser focused on digitisation, attempting to position itself as a Spotify or Netflix for education through its Pearson Plus subscription, giving users access to all its textbooks for $14.99 a month. Pearson has also been diversifying its offering by spreading beyond higher education into workplace training as well.
Investors are excited about the opportunities that Pearson is grabbing, and this has been reflected in its impressive one-year share price performance, up over 45%. Pearson is in fact the best performing stock on the FTSE 100 over the past year, outpacing BAE Systems (LSE:BA.) and Glencore (LSE:GLEN).
WH SMITH
WH Smith (LSE:SMWH) reported group revenue for the past 20 weeks up 41% year-on-year and up 20% versus pre-pandemic in 2019. The seller of books, snacks and other items reported UK total revenue up 70% year-on-year and said it is confident about a year of significant progress, while flagging the economic uncertainties.
WH Smith has benefited from the return to international travel post pandemic, with the release of pent-up demand for holidays abroad providing a key headwind for sales at its Heathrow, Gatwick and other airport outlets. The UK has been a bright spot for the business with a year-on-year surge in revenues as the UK economy normalises post pandemic. The stock has been regaining strength lately, rallying more than 16% over the past six months.
JUST EAT TAKEAWAY
Shares in Just Eat Takeaway.com NV (LSE:JET) are soaring more than 11% after it sees 2022 EBITDA of 16 million euros and 225 million euros for 2023, sharply ahead of expectations. Investors are shrugging off a worse-than-expected 12% drop in fourth quarter earnings to 239.8 million euros. The delivery group said it is exploring the partial or full sale of Grubhub. Its trading update has lifted other stocks like Deliveroo (LSE:ROO) and Delivery Hero SE (XETRA:DHER) in the sector which are rallying in Just Eat’s slipstream.
Delivery companies fared very well during the pandemic when restaurants and bars were closed, with consumers substituting this spending for takeaways instead. However, the removal of government restrictions has weighed on the sector with shares in Just Eat still down 40% over a one-year period even after today’s bounce. It has been expanding further in grocery with its recently announced partnership with Sainsbury (J) (LSE:SBRY), adding to its supermarket tie-ups.
Looking ahead, the company is optimistic about its profitability outlook, helping drive traders and investors back to the stock with is trading at a major discount to its valuation last year.
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