Daily market update: FTSE 100 steady after Budget, gambling sector, Halfords

After yesterday’s Budget-related drama, there is a quieter feel to markets this morning.

The FTSE 100 was flat in early trading after gains in Asia and yesterday in the US on rate cut hopes, with a decent showing for retailers balanced out by weakness in the property and mining space.

After seeing considerable volatility yesterday amid leaks and mixed messages about the UK economic outlook and the implications of Rachel Reeves’ decisions, gilt yields ticked a little higher this morning. The government is likely to be breathing a sigh of relief at the market reaction to date.

Gambling sector

After being dealt a major blow by the chancellor yesterday, gambling sector companies have quantified the impact to earnings from higher duty.

It’s important to remember that most of the London-listed gambling stocks generate revenue from many different geographies, and they’re not solely dependent on the UK. That helps to cushion the blow, but the duty hikes still cause a headache for management and mean they must rearrange the furniture in terms of marketing spend, resources and operations.

Halfords

Much attention around Halfords has focused on its auto services, parts and accessories operations rather than the cycling business.

However, the company’s first-half results are pedal powered with an eye-catching 9% increase in like-for-like sales. Investors have been here before and may not be getting carried away as cycling performance tends to fluctuate significantly.

While cycling sales may be flying like Laura Kenny in the velodrome, supported by warm weather over the summer and autumn, they could just as easily resemble an amateur with a slow puncture next time around. That’s potentially why the market is focusing instead on the more sluggish showing on the motoring side, which has increasingly become Halfords’ bread and butter.

The company is looking to lean on an improvement in its digital platforms as it looks to navigate a difficult road ahead amid continuing pressures on consumer spending. At least by pursuing these improvements and keeping a lid on costs, Halfords is managing the elements it can control.

Marshalls

Patience seems to have run out with Marshalls CEO Matt Pullen less than two years into his tenure.

The move may raise some eyebrows given trading remains on track with current full-year guidance, but the building materials group has struggled to gain traction with its ‘Transform & Grow’ strategy and the shares are sitting materially below the level they were at when Pullen took the top job.

Under his long-serving predecessor Martyn Coffey the business had powered ahead, but its path out of the pandemic has been less than smooth. Demand from households doing up their gardens during Covid ebbed away at the same time as a downturn in construction spending.

Chief commercial officer Simon Bourne is stepping up to lead the business on an interim basis although Marshalls is explicit that it will consider external candidates when it comes to a permanent successor to Cullen. Marshalls badly needs to rebuild its credibility with the market, however it has shored up its finances with a new borrowing facility which gives it some breathing space to get back on track.

Boohoo / Frasers

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

Boohoo’s patience with major investor Frasers has reached breaking point. The online retailer’s implied hatred for the Sports Direct owner means it won’t seek approval from its broader shareholder base before implementing a new management incentive plan.

Frasers hasn’t been explicitly named in the commentary, but it’s easy to guess which shareholder it is referring to. Boohoo says that ‘a major competitor’ and ‘significant shareholder’ continues to seek to cause disruption. In essence, it implies that asking Frasers to vote on the new incentive plan would be pointless as the 29.7% shareholder might reject it, no matter the contents.

The tense relationship between the two sides cannot stay this way forever – one side will need to back down, otherwise all kinds of chaos could ensue.

Despite this drama, the market has lapped up Boohoo’s latest results, sending its share price soaring. There is clear progress with the turnaround efforts as its marketplace model is resonating with shoppers. Costs are being stripped out of the business, and it is talking up the benefits of being leaner and keener.

Boohoo’s comeback will be noted elsewhere in the fast-fashion industry. Management at ASOS will be crying into their cornflakes as their arch-rival gains momentum and leaves them for dust.