European markets took a moment to catch their breath ahead of the all-important US tech earnings season.
A pullback in chip stocks following a storming run earlier this year has left investors hungry for an update on AI-related demand and to see if all the big investments into tech infrastructure are paying off. Alphabet reports tonight, with Intel following tomorrow and Microsoft, Meta, Lam Research, Arm and others next week.
Until we get a clearer picture of tech outlook statements and what management are seeing for the rest of the year and into 2027, it’s possible that markets will continue to tread water.
The FTSE 100 dipped 0.1% to 10,569 as strength in energy, industrials and healthcare was offset by weakness in real estate, consumer cyclicals and tech stocks.
Shares in property developer Henry Boot fell after it issued a major profit warning. It guided for a material slowdown in plot sales as housebuilders scale back activity amid a sluggish market.
Greencore
The latest update from Greencore is a useful corrective to the idea the company simply sells sandwiches. Quiches, chilled dips and sushi helped drive a strong performance which has underpinned a significant upgrade to profit guidance.
Greencore continues to innovate its product offering to keep on top of consumer trends. Resilient sales suggest this approach is paying off and that appetite for convenience snacks and food on-the-go is undiminished despite the tricky consumer backdrop.
Greencore has also wasted no time in integrating recently acquired Bakkavor and is already seeing benefits from the deal as it gets a boost from strong summer demand. Greencore products have filled picnic baskets as people eat out in the hot and dry weather.
The shares might have experienced some indigestion earlier this year as the market found the hefty costs associated with the merger and the impact on cash flow difficult to swallow. However, as the tie-up starts to prove its worth these issues look less of a concern, particularly as cash generation has begun to normalise.
Next on the list is a sale of the US business which is being held as a discontinued operation – this may provide a useful injection of funds to invest for further growth.
Bloomsbury
The debate around people getting paid for the use of copyrighted material in AI continues to rage and the latest announcement from publisher Bloomsbury provides insight into the latest developments in this area.
The decision of a US district court to approve a $1.5 billion class action suit against Anthropic for training its models on content it had not purchased has wider implications than just the windfall Bloomsbury will receive as a portion of this figure.
It is also a positive pointer for the rest of the publishing industry given what it might mean for future AI licensing deals. Bloomsbury is already receiving non-exclusive AI-related licensing revenue under agreements with large language model developers which require opt-ins from its authors.
The influx of cash associated with the settlement will further bolster an already strong balance sheet. Investors will hope the launch of HBO’s TV adaptation of the Harry Potter series this Christmas can work some magic on book sales, and two new titles in the coming months from popular romantasy author Sarah J. Maas are another potential catalyst for Bloomsbury.
Wetherspoons
Dan Coatsworth, Head of Markets at AJ Bell, comments:
When Tim Martin is quiet, you know something has gone wrong. A profit warning from Wetherspoons is a major surprise given the pubs sector should have been basking in the glory of the World Cup.
Football fans love a pint or five, and various pub operators have reportetick in trading around the tournament. But Wetherspoons has fallen short on sales versus market expectations, while cost pressures continue to be problematic.
One would have thought Tim Martin would use the trading update as an excuse to lay out his demands from the new government in how to help the pubs sector. But there is nothing but silence.
He might be playing the waiting game given murmurs that Andy Burnham will announce lower business rates for pubs. It’s possible he doesn’t want to rock the boat before the new prime minister has had a chance to lay out his plans.
Wetherspoons has always trodden carefully when it comes to dealing with cost pressures. Many companies would simply pass on extra costs to the customer through higher prices. Wetherspoons knows its unique selling point is favourable pricing, so it may not want to risk alienating customers by making its products too expensive. That means stomaching extra costs and taking a hit to profits.
Wetherspoons has long prioritised volumes over profit margins, and this might explain the latest profit warning.
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...
