Must read: FTSE 100, Virgin Money, Compass, Walt Disney

With plenty of news to devour today, our head of investment runs through the big company announcements and market movers.

GLOBAL MARKETS 

European markets have opened lower with the FTSE 100 leading the declines. Compass Group (LSE:CPG) is trading near the bottom of the UK index despite better-than-expected full-year earnings. 

Germany’s monthly producer prices unexpectedly dropped in October by 4.2%, swinging from a gain of 2.3% in the previous month. Annual producer inflation fell to 34.5% from a record 45.8% in September, with energy still making the largest upward contribution. 

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Risk-off sentiment is driving flows towards safe-haven assets, with the US dollar index pushing above 107, approaching one-week highs amid Covid concerns in China and hawkish Fed remarks last week. 

China kept its loan prime rate unchanged in November for the third consecutive month amid increased Covid cases in the world’s second-largest economy as well as downside pressure on its currency. The Hang Seng fell around 2% in Hong Kong, while the Shanghai Composite also slid overnight as virus fears weigh on local equities. 

Oil prices are trading lower, with WTI pushing below $80 a barrel hit by worries about China’s economic outlook. Goldman Sachs downgraded its fourth-quarter forecast for Brent crude by $10 to $100 a barrel.

VIRGIN MONEY

Virgin Money UK (LSE:VMUK) reported full-year pre-tax profits of £595 million, rising by 43% from £417 million last year. Its underlying costs were broadly stable year-on-year hitting £914 million, in line with guidance. It announced an extension of its share buyback programme, purchasing up to an additional £50 million. 

The rising rate environment has provided a major tailwind for Virgin Money, which forecasts net interest margins (NIM) to reach 1.85-1.9% points next year having already seen NIMs increase from 1.62% last year to 1.85% this year. Credit card lending enjoyed particularly impressive growth, up 13.8% year-on-year to £6.2 billion, while mortgage lending returned to growth in the second half, despite the mini-budget turmoil. Virgin Money was among the lenders which temporarily withdraw its entire mortgage product range after rates soared and the pound hit an all-time low following Kwasi Kwarteng’s fiscal fiasco in September. 

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In May, Virgin Money shares slumped heavily despite reporting an increase in half-year profits. Traders sold the shares on the back of a cautious full-year outlook and amid disappointment that the challenger bank did not announce a share buyback programme.

However, the story today is very different, with the lender returning cash to shareholders, while the CEO said the company is offering proactive help and support for customers in this environment. Other lenders this earnings season, including Nationwide Building Society last week, have warned of the risk of rising defaults and increased bad loans, highlighting the rising risk of recession and broader macroeconomic pressures on inflation that are squeezing household budgets. 

Shares in Virgin Money are surging double digits today, extending the recent uptrend to log a gain of more than 30% over the last month, alleviating some of the year-to-date losses.

COMPASS GROUP 

Compass Group reported a surge in full-year adjusted operating profit up almost 88% to £1.59 billion versus forecasts for £1.54 billion. Underlying revenue rose by around 38% to £25.8 billion, topping expectations for £25.1 billion. It more than doubled its dividend and announced a share buyback programme of £250 million. However the catering group now forecasts profit growth next year to top 20%, slowing year-on-year, sending shares towards the bottom of the FTSE 100.

Although it has been dealing with the pressures of cost inflation, an increasing number of companies are cutting costs, resulting in increased demand for outsourced caterers like Compass Group to plug the gap. As a result, the catering group has had an impressive year picking up the slack and has been able to return cash to shareholders. Whether this positive momentum can continue into next year as the macroeconomic pressures intensify is yet to be seen. 

Investors have enjoyed an impressive share price performance this year, outperforming wider UK markets with a gain of over 5% year-to-date and more than 21% over the last year.

WALT DISNEY CO 

The Walt Disney Co (NYSE:DIS) has reappointed Bob Iger as CEO for two years, succeeding Bob Chapek who has stepped down from the role. Iger has a mandate to work closely with the board in developing a successor to lead the company. Iger served as Disney’s chief executive for 15 years and will be taking over from Chapek after a rocky less than three-year stint at the helm. Chapek has had a tough time navigating firstly the pandemic and secondly the acutely competitive world of streaming. 

The news of Iger’s return is equally surprising and unsurprising. Clearly Chapek was struggling, given the more than 40% share price plunge this year, and the company’s operating losses from streaming surging by $800 million to $1.5 billion in the third quarter announced this month, and clearly Disney is struggling to find an obvious successor.

Iger is someone who knows the company probably better than anyone and is well placed to help find the next CEO. Iger nearly left Disney on four occasions, delaying his retirement each time so I am sure he will be pleased to enjoy two more years with the entertainment giant again. He has a track record of success with Disney and may be tasked to make tough cost-centric decisions, as a time when the economic downturn is weighing on streaming demand and advertising budgets are getting slashed.

Shares in Walt Disney are rallying in Germany and look set for a strong US open at lunchtime.