Daily market update: FTSE 100 higher on Iran hopes, Next, Diageo, Novo Nordisk

The market is celebrating an apparent late-night TACO Tuesday as the US pauses its plan to escort commercial ships through the Strait of Hormuz to focus on negotiations with Tehran.

A ceasefire which seemed to have been stretched to breaking point appears to be just about holding up. Hopes for de-escalation have been renewed by the latest developments as Donald Trump declares ‘Project Freedom’ to be done and dusted.

A rally for stocks and bonds has taken hold and oil prices have eased back from yesterday’s highs. However, oil is still comfortably in the $100-plus per barrel territory, which is worrying for inflation.

Banks bounced back from yesterday’s sell-off, precious metals miners were supported by a recovery in the gold price and other miners also made progress. BP and Shell took a step back on the retreat for crude.

Next

Such is Next’s skill at managing expectations that even when confronted with an event as disruptive as the conflict in the Middle East it still feels able to lift guidance.

Next is a well‑oiled machine – despite conservative assumptions on Iran, forecasts have still ticked up. This is predicated on making cost savings and passing on some increase in prices, particularly in the Middle East which is an important component of its international operations.

Apart from anything else, investors will appreciate the usual clarity on offer from Next at a time when much of the backdrop looks decidedly murky.

The inherent strengths of Next as a business mean it’s not too hard to see a further improvement in its competitive position as less robust rivals struggle against a tricky consumer and cost environment.

Wetherspoons

Wetherspoons is often compared to a cockroach – not as an insult but instead as a testament to its status as a survivor in what remains a beleaguered hospitality sector.

The business continues to outperform many peers, and its value credentials should be prized by customers whose own budgets are squeezed. However, to keep prices low, Wetherspoons operates with skinny margins.

It is heavily exposed to increasing costs and specifically the energy price shock created by the war in the Middle East.

The market seems relieved this only means profit might fall slightly short of expectations and sales growth suggests demand is holding up well for now.

A legacy of the pandemic is the heavy load of borrowings the company is carrying. While interest costs are expected to remain broadly unchanged year-on-year as debt ticks up, if interest rates move higher that could create another headwind for the business.

Kingfisher

The market seems nonplussed by news that Thierry Garnier will step down as CEO from Kingfisher. He’s overseen both good and bad times for the DIY specialist, and key achievements include attracting more trade customers and selling more goods online.

Investors should be comforted by news that Garnier still has a 12-month notice period to work out, meaning Kingfisher has plenty of time to find a suitable replacement.

Whoever is appointed as new CEO will want to make their mark on the business as soon as possible. That could involve accelerating growth through acquisitions or potentially looking at a break-up of the business.

France has long been a drag on the group and getting rid of those operations could give Kingfisher a new lease of life. Spinning off Screwfix could also be an option as it could be worth more as a standalone entity. However, a new CEO might argue that keeping Screwfix means Kingfisher has a solid backbone while it tries different things.

Novo Nordisk

Novo Nordisk is looking spritely after a long period on the sick bed. It beat first quarter operating profit forecasts and upgraded full-year guidance, helped by weight-loss drug demand. Having slipped behind Eli Lilly in the battle for weight-loss drug dominance, Novo Nordisk shows there is still room for multiple players to do well.

The weight-loss drug market is evolving as prices come down and competition grows. Normally that would be problematic for companies involved, yet the important factor keeping the space vibrant is a steady increase in people using weight-loss treatments.

Novo Nordisk cannot afford to be complacent, and it knows the key to future success is to make its treatments more effective and easier to administer. For now, the quarterly results are a bright spot after a difficult period of setbacks.

Diageo

Dan Coatsworth, Head of Markets at AJ Bell, comments:

Diageo used to flog Guinness with the advertising slogan ‘Good things come to those who wait’. Diageo shareholders have been waiting and waiting for the share price to recover after years of pain, but the promise of joy has still not been delivered.

While there are green shoots of a recovery in its latest trading update, it’s lopsided. Europe, Latin America and Caribbean enjoyed decent quarterly growth whereas North America was disappointing. That’s troubling because the period included distributors stocking up in North America ahead of the football World Cup. Without that boost, the region’s showing could have been truly miserable.

Diageo has a major problem on its hands with US spirit sales in decline. This product line has been central to its growth strategy, with the company long arguing that consumers are happy to pay up for a decent drink. The fall in sales would suggest that is no longer the case, or simply that consumers are less able to splash the cash on ‘nice to have’ but non-essential items.

The hefty drop in North American volumes give management a worse headache than the morning after St Patrick’s Day celebrations. It’s unlikely that Diageo will want to slash prices too much to shift more units, as it’s hard to recover from that situation. Instead, Diageo will have to revive its marketing machine and come up with a clever way to convince drinkers they need to choose its products.

Success in Europe should mean that investors aren’t hounding new boss Dave Lewis. He needs to take advantage of new-found momentum in the region and get Guinness pouring in pubs and flying off supermarket shelves all day long. Guinness is Diageo’s saving grace and provides a steady flow of cash into the business while it sorts out other problems.

The positive share price reaction is investors breathing a small sigh of relief that at least some of Diageo has regained its mojo. Sadly, it remains a long journey to full recovery.