Our head of investment rounds up the morning's big news.
European markets have opened lower, with the DAX in Germany leading the declines. The FTSE 100 is being dragged down by Flutter Entertainment (LSE:FLTR) which is trading at the bottom of the UK index on the back of annual results.
Focus in Europe now shifts to key inflation and unemployment data from the eurozone at 10am. February’s headline inflation rate is expected to ease to between 8-8.5% from 8.6% in January, although this is still sharply above the ECB’s 2% target. The unemployment rate is seen holding steady at 6.6% close to its record low as the labour market remains tight, potentially adding to inflationary pressures.
US futures are pointing to a weaker start to trade at lunchtime following a mixed session to kick off March on Wednesday.
After rival Persimmon (LSE:PSN) slumped 10% after warning that new home sales could fall 40% this year, Taylor Wimpey (LSE:TW.) reported less pessimistic full-year results. While the housebuilder saw its order book decrease to £2.15 billion versus £2.9 billion year-on-year amid weakness in the housing market, CEO Jennie Daly said trading was starting to show signs of improvement, stemming a more aggressive slide in its share price.
The housebuilders are facing a perfect storm from weak consumer confidence, the fallout from last year’s mini-budget chaos, declining real wages, rising mortgages rates on the back of the Bank of England’s tightening path and softening house prices. The latest figures from Nationwide this week saw annual house price growth slow for the first time since the height of the pandemic.
However, hopes that we could be approaching peak central bank rates provided a tailwind to shares including Taylor Wimpey in the sector at the start of 2023, although that optimism has been tapering off in recent weeks amid signs that inflation figures are taking a lot longer than hoped to normalise.
ITV (LSE:ITV) reported total external revenue up 8% in 2022 to £3.7 billion, with particular strength in its Studios business which saw revenue growth of 19% to £2 billion. However, media and entertainment revenue fell by 1%, dragged down by a drop in total advertising revenue (TAR). On the earnings side, adjusted group EBITDA fell by 12% to £717 million because of planned investment in its media and entertainment division on its ITVX streaming service, and it warned that margins are expected to be at the lower end of its guided range short-term because of inflation.
Overall these earnings are a bit of a mixed bag. On the one hand, ITV has enjoyed strong top line growth, yet its bottom line has struggled under the weight of investment.
ITV has been grappling with a slowdown in ad revenues, with the exception of digital ads which have proven to be very resilient. It has also been dealing with pressures from inflation which are eating away at its profit margin. Plus, it has been investing heavily in its ITVX streaming service, which has negatively impacted operating profit short term. Critics argue that ITV is far too late to the streaming party. However, CEO Carolyn McCall said in January the ITVX ramp up has ‘landed really well’ with advertisers.
Analysts at Credit Suisse are encouraged by today’s update all-in-all from ITV, raising its price target on the stock from 103p to 107p per share. Shares have had a strong start to the year, rallying more than 14%, helping the stock to reverse some of last year’s slide, but the stock is under pressure today reflecting the drop in full-year profit.
Haleon (LSE:HLN) reported full-year revenue up 13.8% to £10.8 billion. Organic revenue growth increased by 9% and is expected to slow to 4-6% this year. The GSK (LSE:GSK) consumer health spin-off, which owns brands like Panadol, reported full-year adjusted operating profit up 13.8% to £2.4 billion and said it is well positioned to deliver on its medium term guidance. However, its adjusted gross profit margin fall by 50bps to 62.4% on the back of higher freight and commodity costs as well as £75 million of unfavourable foreign exchange movements since its listing, weighing on its share price today.
While the business has been grappling with cost inflation, FX losses and other costs, it has been trying to offset these pressures by raising prices and forward buying. However, the risk is that consumers could trade down to cheaper unbranded alternatives instead amid the cost-of-living crisis and falling real wages.
Haleon was born out of a demerger with GSK in July 2022. Since its inception, the stock is less than 1% higher. After a bumpy start to life as a public company, shares have been regaining ground since September, but are giving back some of those gains in today’s session.
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