European and Asian stock markets enjoyed a solid bounce on Wednesday as investor sentiment picked up amid a pullback in the oil price.
Brent crude fell 1% to $107.70 per barrel, providing some much-needed relief to the market following an intense period that fired up inflation worries. The dip in the commodity price might not be enough to steer the Federal Reserve on a different path though. It is widely expected to raise interest rates today, with the first of potentially two or three hikes over the next six months.
There were broad-based gains across the UK stock market as the FTSE 100 rose 0.4% to 10,700, led by miners, financials and utilities. Housebuilders rallied after Barratt Redrow’s results showed the business was still ticking over in a tough market.
Ladbrokes owner Entain dipped 1% on reports it would cut 400 jobs as it contends with tax and regulatory pressures. Job cuts normally fire up a share price, but not in this case. Sentiment remains weak towards Entain as it loses momentum in a highly competitive sector.
Peel Group has dug deeper into its pocket in the quest to buy Harworth, the property business originally spun out of UK Coal. Peel has been critical of Harworth in its takeover documents, saying the company faces an uncertain outlook and implying it will be a better owner with bright ideas to generate more value.
Barratt Redrow
Even though the housebuilding sector is being shaken by unhelpful market conditions, Barratt Redrow’s latest results suggest the company is built on solid foundations.
Full-year profit ahead of forecasts, a strong balance sheet and continuing benefits from the successful integration of Redrow were clear positives for the market to take away – and helped spark a relief rally in the stock.
Less positively, margins are under pressure, and Barratt has scaled back its completions target for the current year thanks to planning delays. The industry has consistently signalled its frustration with this issue over several years, suggesting that recent reforms are yet to gain much traction.
Unsurprisingly, Barratt has added its voice to the chorus of calls for greater government support to boost the housing market. But these may not get much of a hearing ahead of the Budget given the amount of competing demands Chancellor John Healey is having to weigh.
What Barratt needs is a shift in the geopolitical and macroeconomic backdrop which would allow for an easing of borrowing costs, boosting the availability and affordability of mortgages and thereby bolstering the confidence of prospective buyers. The latest update suggests Barratt should be resilient enough to ride out a testing period.
Babcock
A first major update under new CEO Harry Holt suggests Babcock is firing on all cylinders, as the company benefits from momentum in the defence and nuclear sectors. Babcock has longstanding experience and expertise in both areas.
Holt’s predecessor David Lockwood is around to help aid the transition and ensure some continuity with a strategy that has proved successful over recent years.
Lockwood will be a hard act to follow. He delivered a total return of 381% over his near six-year tenure, albeit he benefited from a supportive market backdrop.
Babcock will be eagerly awaiting details for the UK government’s £298 billion Defence Investment Plan, with the company well positioned to benefit from naval modernisation projects.
Confidence in the outlook was signalled by the recently launched £200 million share buyback. The company has issued new debt to help give it greater financial flexibility as it looks to invest for future growth while still doling out capital returns to shareholders.
Moonpig
Moonpig shares couldn’t fly after its latest trading update failed to deliver any upgrades and highlighted the continuing drag on performance from the Experiences division.
The share price pullback follows a strong showing for the stock in recent months after June’s full-year results impressed, with the company’s bumper cash flow allowing for generous share buybacks.
Enough people are still keen to send cards to mark birthdays and other major life events, deciding a WhatsApp message or text won’t do, and Moonpig still seems to be able to convince customers to part with extra cash for accompanying gifts. Given the importance of these little extras to Moonpig’s strategy, investors will be watchful for any signs of a drop off as pressures on household budgets prompt a reduction in discretionary spending.
WH Smith
WH Smith is having a hard time convincing the market that its problems can be solved quickly. A trading update has failed to breathe new life into its share price as the business seems to be drifting sideways rather than taking big strides ahead.
North America has been the worry point and fourth quarter revenue growth has slowed versus the previous three months. On a like-for-like basis, Q4 sales have fallen for the region, which is not what WH Smith needs to win over investors.
The rebound in the oil price since mid-summer is unhelpful as it pushes up the cost of getting from A to B, which threatens to dampen activity at WH Smith’s all-important travel hubs.
WH Smith talks about ‘good progress’ on its transformation strategy, but the latest trading figures suggest that its journey to get back on top could be a lengthy one.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...