Daily market update: Centrica, Nestle, Whitbread struggles and Travis Perkins

Rachel Reeves might be reaching for a buck’s fizz after the UK economy showed growth in August after contracting in July. However, the celebration may be short lived as a 0.1% expansion is minuscule and lower than the 0.2% growth expected by some economists.

We’re just six weeks away from the Chancellor’s Budget and the nation is eager to know how Reeves plans to get the country moving while also repairing the black hole in public finances.

A lot of people view the UK as being in a difficult spot – lacklustre growth and a weak financial position. The outlook is far from rosy and there is a big risk that tax tweaks could further dampen consumer and business sentiment.

The FTSE 100 was flat in early trading as strength in utilities and energy was offset by weakness in consumer cyclicals and healthcare.

Centrica shares moved higher after a bullish broker note from Barclays which upgraded its rating on the stock from ‘equal weight’ to ‘overweight’. The bank was also bullish on European utility EDPR, noting a stronger outlook for the sector driven by power and investment demand growth.

Nestle

Nestle’s new CEO Philipp Navratil might have made more enemies than friends since taking the top job in September. He’s announced that 16,000 jobs will be cut over the next two years, three quarters of which will be white-collar workers. Doing so will double previous annual savings targets, but it doesn’t bode well for staff morale.

Financial markets typically applaud widespread job cuts as removing costs from a business implies bigger profits. That explains why Nestle’s shares bounced on the news, alongside better than expected third quarter sales growth.

Navratil says Nestle needs to ‘change faster’, suggesting widespread job cuts won’t be the only difficult decision he has to make. It’s plausible that the new CEO could further slim down the company via asset sales and get more demanding with raw material suppliers to strike better deals.

Whitbread

Whitbread shareholders will be wondering if Premier Inn’s ‘good night sleep or your money back’ guarantee extends to investors, judging by yet another weak performance.

Earnings in reverse, higher net debt, and a downgrade to forward profit guidance is the kind of news that makes investors suffer from insomnia.

The fact Premier Inn is struggling to make decent progress in the UK suggests market conditions remain unfavourable for the hospitality industry.

There are reasons not to lose hope. Trading has picked up recently in both the UK and Germany, and the group continues to take market share. Unfortunately for the company, the negative share price reaction to its latest results suggests investors lack faith in Whitbread bouncing back any time soon.

Travis Perkins

Slashing prices is always a gamble for companies. It typically means accepting a lower profit margin and risks causing a reset in the mind of the customer whereby they will expect cheaper goods forever, not simply during a promotional period.

Travis Perkins is going down this uncertain road and so far, it looks as if the gamble is paying off. Lower prices have led to higher sales volumes in Travis Perkins’ merchanting arm. That’s helped to win back some of the market share it had previously lost. In effect, Travis Perkins is stabilising things before its new CEO arrives in January.

Gavin Slark has considerable experience in the industry and will want to put his mark on Travis Perkins. Whether that means a continuation of cheaper prices, or focusing more on protecting profit margins, remains to be seen.

If Travis Perkins can sustain current momentum, it would mean Slark walks into a business that has already steadied the ship rather than one which has been battling storms at sea. The new boss would then be able to focus on future growth and not battening down the hatches.