Interactive Investor

Must read: Restaurant Group, Morrisons, supermarket prices, BMW/Mini

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

11th September 2023 08:51

Victoria Scholar from interactive investor

GLOBAL MARKETS

European markets are trading higher, with the FTSE 100 extending gains after logging its best day in a week on Friday. 

Miners like Fresnillo (LSE:FRES), Anglo American (LSE:AAL), and Antofagasta (LSE:ANTO) are leading the charge amid optimism towards China after its consumer price index data saw the economy shift away from deflation territory. 

Housebuilders like Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV) are also near the top of the UK blue chip index,. That comes as Vistry Group (LSE:VTY) stages double-digit percentage gains, on track for its best day since November 2020 after its first half earnings release which included plans to launch a share buyback programme. 

UK inflation expectations rose in August. According to a Citi / YouGov poll, 12-month forecasts for inflation rose to 4.4% from 4.3% and five to ten-year expectations hit 3.3% up from 3.2% in July. This comes ahead of the Bank of England’s rate decision on 21 September when the central bank is widely anticipated to raise rates again.  

In the US, Treasury Secretary Janet Yellen said she’s ‘feeling very good’ about the potential for a soft landing stateside, adding ‘we’re on a path that looks exactly like that.’

RESTAURANT GROUP 

Wagamama’s parent company, Restaurant Group (The) (LSE:RTN) (TRG) has agreed to sell its leisure business to Big Table Group, which owns brands including Café Rouge, Las Iguanas and Bella Italia. Private equity owned Big Table Group will receive £7.5 million to take on the loss-making business, which is made up of 75 trading sites, principally comprising of the brands Frankie & Benny’s and Chiquito. 

TRG is hoping to accelerate its goals of boosting earnings margins and reducing debts through the deal by focusing on its remaining three divisions – Wagamama, pubs and concessions. 

Restaurant chains have faced multiple challenges in recent years from pandemic-era lockdowns to cost inflation from wages, energy, food, and drinks. Plus, cost-of-living pressures have squeezed consumer budgets, dampening demand for restaurant visits. 

Shares in TRG were heavily punished last year but have been regaining ground thanks to cost saving measures and an upgrade to its annual profit guidance. And the stock is staging strong gains this morning, reflecting investor optimism towards the divestment. 

All this comes after Chairman Ken Hanna announced plans to step down last week amid pressure from activist investors.

MORRISONS 

Morrisons is in talks to sell 340 fuel retail sites to the UK’s largest petrol stations business, Motor Fuel Group (MFG) in a deal worth around £2 billion. Both firms are controlled by US private equity giant, Clayton Dubilier & Rice (CD&R). Earlier this year, Asda acquired fuel retailer EG Group’s UK and Ireland operations as it expands its footprint in energy whereas Morrisons is looking to downsize. 

Petrol earnings have been a source of contention among the supermarkets who have been criticised of profiteering from high energy prices. In June, the boss of Morrisons David Potts admitted ‘there is more profit at the retail end of fuel.’ The Competition and Markets Authorities (CMA) raised concerns about weak competition in the retail fuel market. 

The deal would mean that Morrisons will focus more on its bread and butter rather than risk becoming a jack of all trades. Perhaps the recent scrutiny of petrol forecourt pricing means Morrisons has less conviction towards its earnings potential in fuel too.

WAITROSE 

Waitrose is cutting its prices again for the third time this year. The supermarket is lowering the cost of 250 items by an average of 10% as part of a £100 million investment drive to retain customers. 

Supermarket shoppers have become increasingly price sensitive amid the cost-of-living crisis. Plus, the German discounters Aldi and Lidl, best known for the rock-bottom prices, have forced the incumbent players like Waitrose and Sainsbury (J) (LSE:SBRY) to up their game on the pricing front as the challenger brands continue to growth market share in the UK. In contrast, Waitrose’s market share has been on the decline, as squeezed consumer budgets prompt individuals and families to trade down to cheaper alternatives. 

Its parent company John Lewis will unveil its latest half-year results on Thursday following a £230 million loss last year, prompting a major turnaround plan including hefty cost cuts.

BMW / MINI 

BMW is investing hundreds of millions of pounds in its Mini factory in the UK to supercharge its electric car production, creating 4000 jobs. This marks a change of strategy from its previous plans to shift its electric Mini production to China. 

It follows a similar move from Jaguar Land Rover’s parent company Tata in July when it announced plans to create a gigafactory for battery production in Somerset. However, Honda said it was exiting its Swindon plant in 2019, resulting in thousands of job losses.  

Today’s update on BMW is a win for the UK government, acting as a vote of confidence in Britain’s auto manufacturing sector, and hopefully could pave the way for other car giants to follow suit. It helps to temper the sharp decline in UK car production in recent years with electric vehicle manufacturing and the green transition more broadly, a key growth frontier that many economies are looking to capitalise on.

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