Daily market update: FTSE 100 flat, Burberry, ITV talks with Sky ongoing

The FTSE 100 was flat in early trading on Thursday as investors sat on their hands and awaited the latest developments in politics and geopolitics at home and abroad.

Gilt yields were steady as a potential challenge to Keir Starmer’s premiership continued to bubble away in the background, while domestic-facing stocks regained some of the losses endured amid this week’s turmoil.  

However, the latest goings-on in Westminster could be overshadowed by global events as Donald Trump continues talks with Beijing. As well as progress on trade, markets are alive to the possibility the summit might pave the way for China to help the US on Iran.

Oil prices remain firmly back above $100 per barrel but below the highs seen last month.

ITV

It's now six months since ITV revealed takeover interest from Sky for its media and entertainment arm. Those talks are still ongoing, with ITV promising an update soon. While it’s impossible to say why talks are dragging on, one can only speculate it is disagreement about price.

Sky is in a strong negotiating position given the linear TV part of ITV’s business faces an uphill battle as more people opt for streaming ‘on demand’ services. It won’t want to pay a big premium to buy it.

If Sky can’t get a deal over the line, other potential suitors might include European broadcasters such as TF1 looking to expand their reach. Alternatively, private equity might want the whole of ITV and then look to break it up. The jewel in the crown is the Studios arm which could be worth a lot more as a standalone entity than part of a media conglomerate.

Current trading is lacklustre on the media and entertainment side. The Middle East conflict has the potential to cause a sharp drop in advertising if companies are worried that the oil price spike is dampening consumer spending.

There’s no point investing big money on adverts if consumers aren’t splashing the cash. Fortunately for ITV, it appears that advertising activity has trundled along so far, albeit not exactly at big levels.

A lot of advertising slots are booked well in advance, so there is still the potential for ITV to suffer from a pullback in client activity if oil prices don’t come down soon. There might be a lag effect on its earnings.

The one saving grace is the World Cup as advertisers might still want to take the risk of booking airtime if they know there will be significant viewing figures for matches.

Burberry

Burberry’s return to a more mid-tier and aspirational customer base is a tacit admission that in trying to compete at the high end of luxury it had flown too close to the sun.

The more grounded strategy, emphasising the brand’s ‘Britishness’ and concentrating on items central to its heritage like scarves and trench coats seems to be paying off after a third consecutive quarter of retail sales growth.

Combined with tighter control of the purse strings, Burberry has found the recipe for a return to profit with its full-year results.

Despite strong fourth quarter growth in the key North American and Chinese markets, investors were spooked by a weaker performance in the Middle East and Europe as well as a gloomy tone to the outlook.

Chief executive Joshua Schulman didn’t try and dress up the macroeconomic situation, as the Iran war hits tourism and puts spending on discretionary items under pressure. Management’s decision to continue the freeze on dividend payments is another indication of their caution about the immediate prospects for the business.

This conservatism, while poorly received today, may help in the longer term if it keeps expectations in check. However, given the miserable experience Burberry shareholders have endured in recent years it seems they were looking for a bit more sunshine alongside the rain.

3I Group / Action

Shares in FTSE 100 investment trust 3i Group crashed 19% after the company paid the price for being too reliant on a single holding. Its portfolio is dominated by Dutch value retailer Action whose news flow has soured of late.

For a long time, Action was seen as invincible, one of the fastest growing retailers in Europe and the reason why investors were happy to pay a large premium to own 3i Group shares. That goodwill has now disappeared.

First, 3i Group warned that Action wasn’t doing as well in France, then it revealed the retailer would try its luck at the highly competitive US market. Now we’ve got a warning of a broader slowdown in sales growth, blamed on France again and lower footfall in Germany.

The Middle East conflict is clearly having a negative impact on consumer confidence as individuals face the prospect of a higher cost of living and potentially greater borrowing costs.

The past 12 months have shown that Action is as immune to setbacks as all other retailers, and that’s effectively removed the halo from above 3i Group.

Premier Foods

Mr Kipling seller Premier Foods has turned in an exceedingly good performance. Profit growth looks tasty, and shareholders are being loaded up with dividends as a sweet treat.

The once-zombie company is now in a much stronger financial position. The new-found freedom to spend on product innovation and marketing rather only having cash for debt repayments has transformed the business. It is spending money to make even more money, and success has paved a way for international expansion.

Premier Foods has in-built protection by having a broad product range. Rather than be dependent on a single type of product, it can afford to have one area drag their heels at any one time while another steps forward.

A blend of sugary items like cakes and desserts is nicely offset by healthier options such as grains. The world is moving towards healthier living, yet there is always space for a sugary pick-me-up. In the middle of its portfolio are everyday items such as sauces and spices that form the backbone of a multitude of meals.

Princes Group

Canned goods may not be the most exciting business to be in but the latest update from Princes Group shows it can be a profitable and cash generative one.

The company’s start to life on the stock market has hardly been an unblemished one – with uneven trading not helping – but the improved margins and cash flow seen in the first quarter are helping win investors over.

Princes has demonstrated its ability to pass on rising costs to customers – with its products the sort of staples which often hold up well during difficult economic times. They tend to be affordable and long lasting – meaning less risk of waste.

Princes also has a footprint in unbranded goods which means it is partially insulated from consumers trading down to cheaper alternatives. A strong balance sheet also puts the company in a good position relative to its rivals.