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“US markets continue to enjoy a strong run thanks to generally positive updates from big tech firms,” says Russ Mould, Investment Director at AJ Bell.
“While there have been a few exceptions including Intel, and Tesla’s warning certainly created a headwind, investors still seem optimistic overall.
“That positivity fed through to a decent showing from Europe on Friday, with the FTSE 100 up 0.9% and the CAC 40 rising by 1.3%, supported by a rally in luxury goods stocks. The FTSE 100 is still down year-to-date, but it is doing its best to play catch-up.”
Luxury goods: Diageo / Remy Cointreau / LVMH / Burberry
“Diageo bounced back after a torrid spell on the market as investors took comfort from LVMH’s results, as well as some green shoots in Remy Cointreau’s results, that the luxury sector isn’t completely broken.
“Quite a few companies serving wealthier individuals have issued downbeat trading statements in recent months, causing the market to worry that the luxury sector had finally fallen victim to the pressure of higher interest rates on people’s finances.
“Diageo recently warned about a drop in Latin American drinking which led investors to speculate that demand for expensive spirits might be waning. LVMH’s latest update flagged slowing sales growth for its product range but the company struck a confident tone, giving a lift to luxury-related stocks including Burberry and Pernod Ricard.
Also helping to drive the sector was Remy Cointreau’s latest figures which showed a quarter-on-quarter improvement in the Americas, a region that has been awash with promotions and retailers/wholesalers running down existing stocks.
“It seems the sector could go through a phase where investors are rewarding companies that say things are not as bad as feared, rather than saying everything is going well.”
Intel
“While plenty of businesses in the chip sector have been bullish of late, Intel becomes one of the rare exceptions.
“In another telling reminder that the market doesn’t care about the past, only the future, Intel’s better than expected fourth quarter results were brushed aside as investors focused on the soggy outlook for the first quarter.
“Sales have been slowing in the PC and laptop processing chip market, which is Intel’s bread and butter, though they are now stabilising a touch, and there is a danger Intel is being left behind as chips from the likes of Nvidia and Advanced Micro Devices play an increasingly important role in the data-hungry AI industry. The big slowdown seen in Intel’s AI and data centre arm, which is where the likes of Nvidia are dominating, feels particularly telling.
“The strategy outlined when CEO Pat Gelsinger joined in 2021 of matching rival Taiwan Semiconductor Manufacturing Company in making chips for third parties alongside improving its own branded chips is seeing progress, but we are talking about baby steps rather than any great leaps forward.”
WH Smith
“There are two tasks for WH Smith’s management on a rolling basis – keep the travel stores growing and make sure the UK high street stores remain stable. Its latest trading update shows the retailer has essentially delivered on both counts but it is certainly not a five-star performance.
“The travel arm is doing ok – its stores in transport hubs can charge more for food, drinks and other products as there is not a lot of competition and travellers do not have either the time or even the option to find alternative shops.
“WH Smith continues to open new travel stores and it is benefiting from the ongoing strength in the travel sector where individuals seem happier to spend more on experiences than material goods. Train strikes in the UK are unhelpful but the travel arm is a global business so benefits from geographic diversification.
“The key area to watch is the pace of revenue growth in the US, which has ground to a halt on a like-for-like basis. That puts more pressure on the group to accelerate new store openings while also getting the tills ringing more often in existing sites.
“The high street business is essentially the cash machine which provides strong support for the group to expand and pay dividends to shareholders. The stores are not shiny and new, little money seems to be spent on refurbishments and it appears to run on a skeleton crew as it cuts costs to the bone. For as long as people are buying the odd magazine, paperbacks, stationery, wrapping paper or board game, WH Smith’s high street shops stand a good chance of survival.
“Like-for-like high street revenue in the 20 weeks to 20 January 2024 fell by 3% which isn’t disastrous and is in line with management’s expectations. No-one expects the UK high street arm to deliver spectacular revenue growth, its job is to simply keep ticking over and make a tidy profit.”
Wickes
“The Covid-inspired home renovation boom may have abated but Wickes is still performing creditably. In a difficult market, to guide for profit at the top end of expectations is no mean feat. The company is also growing its market share.
“One striking feature of this latest update is the decline in so-called do-it-for-me sales as opposed to DIY. It hints at a reduction in appetite or capacity for households to take on large projects.
“In fairness some of the slippage in sales can be attributed to the implementation of new software and the company’s messaging remains fairly bullish. Management is certainly confident enough to stick to the previously outlined growth strategy.
“A pickup in the property market, of which there are nascent signs thanks to the improved affordability of mortgages, will be supportive to Wickes as people tend to do up their homes to sell or look to change their new place to their own tastes.”
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