Interactive Investor

Must read: Vodafone, Flutter, UK jobs, Greggs, Currys

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

14th May 2024 09:08

by Victoria Scholar from interactive investor

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vodafone

      EUROPEAN MARKETS

      European markets are trading around the flatline after the FTE 100 snapped its six-day winning streak on Monday. Vodafone Group (LSE:VOD) is hovering towards the top of the blue-chip index following a positive update from the company, while Flutter Entertainment (LSE:FLTR) is among the top losers, down almost 3%. 

      Flutter shares are under pressure after it reported a 16% rise in first-quarter group revenue to $3.4 billion, missing analysts’ expectations for $3.57 billion. Quarterly US revenue rose by 32%, down from its previous estimate of 56% because of unfavourable results at the March Madness college basketball tournament. Meanwhile, Flutter announced it has moved its operational headquarters to New York as it prepares to switch its primary listing to New York, in a major blow to the London Stock Exchange.

      UK labour market statistics from the Office for National Statistics (ONS) out today saw the unemployment rate inch higher for the third consecutive month, hitting 4.3%, the highest since July but matching analysts’ expectations. In a further sign of growing slack, vacancies in February to April decreased for the 22nd consecutive month, this time by 26,000 to 898,000, falling by 188,000 from a year ago. However, wage growth remains strong with regular pay excluding bonuses up 6% year-on-year in the three months to March. Real pay growth remains at its highest level in more than two years.

      VODAFONE

      Vodafone reported full-year revenue of 36.7 billion euros, falling short of estimates for 43.16 billion euros. But core earnings hit 11 billion euros, in line with analysts’ forecasts and adjusted free cash flow hit 2.6 billion euros, beating expectations for 2.44 billion euros. Germany enjoyed services revenue growth of 0.6% in the fourth quarter and 0.2% for the full year. 

      CEO Margherita Della Valle has been restructuring the business since taking to the helm permanently in April last year. She’s been trying to ‘right-size Europe for growth’, simplify operations and reduce costs in order to reinvigorate investor confidence and performance at the business. 

      Vodafone has been struggling amid intense competition, regulatory headwinds, and high debt levels. Inflationary cost pressures have also hurt its biggest market, Germany, but it returned to growth there last November with Della Valle’s turnaround plan beginning to bear fruit. 

      She has also spearheaded some major sales at Vodafone to help with the simplification process including announcing plans to offload its Spanish and Italian operations as well as sales of Vodafone Hungary, Vodafone Ghana and a stake in Vantage Towers. Meanwhile, the company is still waiting to find out if its potential merger with Three UK achieves regulatory approval. 

      For investors, however, despite some impressive strides being taken by management to breathe life into the business, income investors in particular will be wary about Vodafone’s plans to slash its dividend in half to 4.5 cents in 2025, down from 9 cents in the 2024 financial year. Even after today’s boost, Vodafone’s shares continue to struggle, significantly underperforming the FTSE 100 this year and are down around 20% over the past 12 months.

      GREGGS

      Greggs (LSE:GRG) reported 19-week like-for-like sales growth of 7.4% and said its full-year outlook remain unchanged. Total sales rose to £693 million up from £609 million year-on-year. 

      Greggs has benefitted from sales of its new over-ice drinks including coffee and coolers as well as strong growth in pizza boxes and ongoing robust demand for hot food. It continues to open new stores with 64 new shop openings during the period, including 15 with franchise partners. Its low-price offering remains resilient to the sluggish consumer backdrop and macroeconomic pressures from higher interest rates and elevated inflation. In a further sign of resilience, earlier in the year Greggs also announced a 40p special dividend after a strong start to 2024. 

      However, Greggs sees no change to its outlook for cost inflation which is seen remaining around 4-5%, above the UK’s headline rate of inflation, and the bakery said the market remains ‘challenging.’ 

      Investors are struggling to find enthusiasm for today’s update, amid its unchanged full-year guidance, the market headwinds and a lacklustre day for European markets more broadly with the FTSE 100 and FTSE 250 trading around the flatline. After a solid share performance so far this year, shares are giving back some gains today, trading down over 1%, reducing its year-to-date gain to around 6%. Shares are also lower over a one-year period. 

      From an analyst perspective though, the view is more optimistic with 9 buy recommendations versus 2 holds and zero sells on the stock and an average price target up 15% from the current share price.

      CURRYS 

      Keith Bowman, Equity Analyst, interactive investor says:Currys (LSE:CURY) continues to prove it was right to reject opportunistic takeover approaches as it raised annual profit forecasts again. 

      Like-for-like sales returned to growth in the 16-weeks to late April, up 2%, with momentum at its UK and Irish business improving and adjusted profit at the Nordics operation expected to more than double year-over-year, ahead of expectations.

      A forecast annual adjusted profit of between £115 million and £120 million is up from previous predictions of at least £105 million. Expected year-end net cash of around £95 million contrasts with last year’s year-end net debt of £97 million, helped by its Greek business disposal, with interest related costs coming in below prior estimates. 

      Elevated borrowing costs continue to pressure consumer spending, with slow housing market transactions also likely hindering sales of white goods such as washing machines and fridge freezers. The sale of its Greek business reduces geographical diversity, competitors such as AO World are always a threat, while the dividend remains suspended given the company is focused on strengthening the balance sheet.  

      On the upside, a recovery at its Nordic business continues and demand for higher profit margin services such as repairs appears to be growing. A store portfolio offers consumers the opportunity to test products before buying, while both Microsoft and Accenture have recently been called in to improve Currys’ own AI technology. 

      A continuing recovery offers grounds for optimism and recent bid approaches shows others believe there’s value here. However, slender profit margins, intense competition and an uncertain consumer spending outlook mean City opinion remains a hold, albeit a strong one.

      These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

      Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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