Our head of investment rounds up the morning's big news.
European markets are trading higher, with the FTSE 100 trading back around the key 7,500 level. BP (LSE:BP.) and Shell (LSE:SHEL) are outperforming the UK large-cap index alongside miners like Anglo American (LSE:AAL) and Glencore (LSE:GLEN).
The World Bank forecasts a ‘lost decade’ for global growth, anticipating that GDP will hit a three-decade low of 2.2% until 2023. It has warned that another financial crisis could lead to a sharper slowdown. The World Bank has called upon policymakers to increase labour participation, productivity, and investment.
In the UK, Bank of England governor Andrew Bailey warned last night that early retirements could push inflation higher and in turn lead to the need for higher interest rates. He is set to face a grilling from MPs today over the collapse of Silicon Valley Bank UK at 9.45am BST.
UK BRC SHOP PRICE INDEX
The British Retail Consortium (BRC)’s shop price inflation index rose to an 18-year high of 8.9% in March versus 8.4% in February. Food prices increased much faster than the average, by 15% year-on-year. The BRC’s CEO Helen Dickinson said shop price inflation has yet to peak.
The latest BRC shop price index echoes the official Office for National Statistics figures released last week. Inflation is lingering much longer than analysts had hoped or expected. Food price inflation is particularly strong given the recent supply issues for salad and vegetables in the UK due to disappointing harvests in Spain and North Africa. When inflation takes its toll on consumer staples, those at the lower end of the income spectrum get hit hardest, exacerbating the cost-of-living crisis for those in low income households.
Although the official headline inflation figure remains in double digits, hitting 10.4% in February, the Office for Budget Responsibility is still confident that price pressures will ease throughout the rest of this year, heading back below 3% by the end of 2023. However, if March and April’s inflation readings continues to show persistent price pressures, there may be revisions to this rosy outlook, particularly if there continue to be issues around sugar production, vegetable harvests and energy costs.
UK grocery inflation hit a record high 17.5% in the four weeks to 19 March, according to Kantar. Dairy prices have been particularly hit by inflation with a rapid increase in prices for products such as eggs, milk, and cheese.
Sales at the German discounters have been outperforming, with Aldi UK up 25.4% and Lidl up 25.8% in the 12 weeks to 19 March. Morrisons continues to struggle with lacklustre sales growth up just 0.1% over the same period.
The cost-of-living crisis has made consumers hungrier than ever for a bargain, playing into the hands of the low-cost supermarkets like Aldi and Lidl. Supermarket loyalty has dropped as shoppers compare prices, seeking out the best value ranges from various stores. The race to the bottom on price has intensified as consumers switch from branded to unlabelled cheaper alternatives to combat inflationary pressures. Last year, Aldi overtook Morrisons as the UK’s fourth largest supermarket marking an end to the longstanding Big Four in the UK.
WILLIAM HILL / 888
The UK Gambling Commission is fining three gambling firms owned by William Hill £19.2 million, the largest penalty in UK gambling history. Andrew Rhodes, CEO of the Gambling Commission told the BBC that William Hill, which is owned by 888 Holdings (LSE:888), was issued the penalty because of “serious non-compliance issues around safer gambling measures.. and also anti-money laundering control failings across the company.” One customer was able to spend £23,000 in 20 minutes without any checks. Anti-money laundering failures allowed customers to deposit high amounts of money without check up to as much as around £70,000.
888 argues these issues relate to William Hill before it was acquired by the betting giant last year. The £1.95 billion purchase of William Hill’s non-US assets from Caesars completed last July, having initially agreed to the deal in September 2021. The purchase price was originally agreed at £2.2 billion but was reduced because of a change to the macroeconomic and regulatory backdrop.
Shares in 888 have had a rough ride over the last year, shedding over 70% of their value. Investors have been concerned about the significant debt taken on to finance the William Hill deal as well as a decline in revenues last year, despite the FIFA World Cup. Online revenues have also struggled with the ramp up in the regulations around player safety in the UK.
Its share price slide is in stark contrast to that of Flutter Entertainment (LSE:FLTR), formerly Paddy Power Betfair, which is the best performing stock on the FTSE 100 over a one-year period, up 60% thanks to strong trading in the UK and impressive expansion plans in the US, suggesting that 888’s woes are idiosyncratic rather than related to the macroeconomic backdrop and the cost-of-living crisis.
Diageo (LSE:DGE)’s CEO Ivan Menezes has announced plans to retire. Debra Crew, the company’s chief operating officer will take over the top job and join the board on 1st July.
Menezes has been chief executive at Diageo for almost a decade having been appointed in July 2013. During his tenure, shares in Diageo have performed well, gaining almost 90%. Menezes helped to steer the company through the challenges of the pandemic and has widely expanded Diageo’s portfolio of drinks brands. It now sells over 200 brands in over 180 markets and is the number one company by net sales value in many key spirit markets including Scotch whisky, vodka, gin, and rum. He has also helped to navigate the backdrop of rapidly changing consumer preferences, capitalising on the rising demand for no or low alcohol drinks with Guinness 0.0, Tanqueray 0% and Gordon’s 0%.
Navigating the market volatility and weak sales in North America, with the consumer slowdown stateside will be among the key challenges facing Crew when she takes over in the summer.
Bellway (LSE:BWY) reported half-year pre-tax profit down 5% to £312.1 million. Its forward order book on 12 March hit £1.6 billion versus £2.2 billion year-on-year. However, it announced a £100 million share buyback programme. Bellway also said customer demand had improved this calendar year, helped by a seasonal uplift and a fall in mortgage rates. It is on track to deliver volume output of around 11,000 homes in the full financial year.
The housebuilders have had a difficult time over the last year with build cost inflation, the mortgage mayhem around the mini-budget last year, the cost-of-living crisis, rising interest rates and falling house prices. Shares in Bellway are down over 20% year-on-year, outperforming Persimmon (LSE:PSN) which is down over 40% but underperforming Barratt Developments (LSE:BDEV) which is down around 12%.
Nonetheless, the housebuilders have had a strong start to the year, rebounding from last year’s losses as investors look towards the potential imminent peak of the rate hiking cycle and as buyers look to return to the market later this year as house prices and mortgage rates become more affordable again.
Barr (A G) (LSE:BAG) reported a 13.3% increase in full-year adjusted profit before tax to £43.5 million, beating analysts’ expectations for £42.9 million. However, it warned of many headwinds looking forward including inflation which has hit the UK soft drinks market. The Irn-bru maker flagged margin pressures again having raised prices last year to offset the increase in costs.
Investors are shrugging off the earnings beat, focusing on margin pressures with shares trading lower by more than 1%, landing the stock in negative territory year-to-date. Drinks brands have been facing headwinds on two fronts both on the cost side as well as the consumer side with the cost-of-living crisis prompting households to make cutbacks on non-essential items. Over recent months, shares have been rebounding, helped by the broader pick-up in market sentiment since the lows in October with shares up almost 15% over the past half year.
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