Interactive Investor

Three big stocks having a bad day at the office

27th April 2022 15:44

Graeme Evans from interactive investor

Markets are volatile and results reporting season is serving up mixed messages on the health of UK Plc. Here's why this trio have struggled.

The recent retreat for shares in industrial software company AVEVA Group (LSE:AVV) accelerated today as more FTSE 100-listed companies revealed the cost of severing their ties with Russia.

Aveva, a member of London’s top flight since replacing retailer Marks & Spencer Group (LSE:MKS) in the May 2019 reshuffle, signalled a likely £20 million hit to profits as it warned that the loss of business due to Russia sanctions will be about 2% of annual revenues.

Shares fell more than 15% today as Cambridge-based Aveva also highlighted cost inflation pressures, including from a “very competitive” software labour market.

Its weaker guidance for 2023 offset a robust finish to the 2022 financial year after 18% revenues growth in the final quarter. The company also reiterated its longer-term 2026 guidance as it expects growth and margins to recover from 2024.

Today’s slide of 390.25p to 1,897.75p means Aveva shares have returned to where they were in December 2018, having topped 4,000p as recently as September.

Its entry into the FTSE 100 index was driven by 2017’s £3 billion deal to merge with the software arm of French energy group Schneider Electric, a move that increased Aveva’s presence in North America and reduced dependency on the cyclical oil and gas sector.

The industrial internet of things, data visualisation and artificial intelligence are among its solutions as Aveva helps customers reduce capital and operating costs. It dates back to 1967 as a breakaway from the University of Cambridge, when it was known as CADCentre, and  listed on the stock market in 1996 before changing its name to Aveva in 2001.

Analysts at Investec said that today’s update pointed to a 15%-20% cut to profit numbers as they prepared to lower their previous 4,500p target price. UBS, which was at 4,675p before today, said some of the impact may be limited if management can convince investors that revenue headwinds are mainly one-off in nature.

Another FTSE 100 stock under pressure today after revealing the financial impact of Russian sanctions was London Stock Exchange Group (LSE:LSEG), which dropped 116p to 7,968p.

It estimated the cost at £60 million for 2022, most of which reflects the suspension of data and  analytics services to customers in Russia. The guidance offset an otherwise strong update, with first quarter revenues growth being 6.3% — or 6.8% when excluding the loss of the Russia business. UBS has a neutral recommendation and 8,150p target.

In the FTSE 250 index, shares in WH Smith (LSE:SMWH) were among the biggest fallers despite interim results highlighting optimism around the recovery prospects for its travel store estate. The retailer reported that travel revenues in the eight weeks to 23 April were at 114% of 2019 levels, rising to 126% for the Easter holiday period.

The size of the travel estate continues to grow following a number of contract wins, particularly in Spain. The high street arm delivered a resilient performance as group-wide profits for the six months to the end of February came to a better-than-expected £14 million.

The company added that a recent cyber attack on its Funky Pigeon online greetings card business was unlikely to have a material impact on its financial position.

Shares fell 65p to 1446.5p today as sentiment towards the retail sector continued to weaken. HSBC notes that the company currently trades on 22.6 times 2022 earnings, dropping to 15 times in 2023 and compared with a pre-pandemic multiple of 20-21 times.

It has a target price of 1,840p, while Investec Securities was at 2,140p prior to today’s results.

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