Daily market update: Markets steady after wobble, WH Smith, Thames Water

Yesterday’s selloff on Wall Street didn’t turn out to be too disastrous, with the Nasdaq clawing back much of its losses by the end of the session. That has helped to avoid contagion on the markets, albeit investors are slightly nervous about the heightened volatility this week.

There are many reasons why markets are wobbly. The prospect of interest rates staying higher for longer, inflation fears, frustration that the Iran war is still going on and potential liquidation events if investors are trimming holdings to raise cash to back some mega IPOs on the horizon.

European indices kept their chin up and showed small but welcome progress. The FTSE 100 advanced 0.2% to 10,243 as investors snapped up defence stocks, grocery sellers, tobacco producers and consumer goods companies.  

WH Smith

WH Smith is in a tricky situation with a downturn in trading coming off the back of an accounting hiccup. It’s not the best conditions to go cap in hand to shareholders.

The Middle East conflict has pushed up fuel costs for the airline sector and led to weaker travel demand, partially down to consumers being worried about a potential fuel shortage if the Iran war rumbles on.

WH Smith’s decision to go all-in on the travel sector last year was unfortunately timed given what’s happened in the Middle East. There isn’t a lot the company can do apart from shore up its finances in the hope a cash injection will help it battle through difficult market conditions.

Shareholders might take the view that its long-term prospects are still good, but their patience has already been tested by the company’s recent overstatement of profits and share price collapse. They will want as big a bargain as possible on the fundraising now to warrant the risk of putting up even more money to back WH Smith.

Thames Water / Pennon

The company which has made the water utilities sector’s name mud with the public, investors, regulators and politicians is continuing its efforts to avoid nationalisation.

The latest reporting suggests a significant outlay will be required to get a creditor-backed takeover of Thames Water off the ground. The deadline is ticking with Thames Water expected to run out of cash by October.

The eventual plan is that Thames Water might list on the stock market as soon as 2030 although it may be a hard sell for investors given its difficult history.

A slightly happier story in the sector is provided by South West Water’s owner Pennon under its new CEO Keith Haslett.

The company has had to deal with its own challenges – notably the parasite outbreak in its supply in Devon in 2024 for which it was recently fined – but a return to profitability underlines the company’s progress. 

Pennon has largely kept a lid on costs and has benefited from higher customer bills under the new regulatory settlement and increased consumption, allowing for a decent bump in the dividend.

However, mixed operational performance and material penalties for failing to hit environmental and service targets agreed with Ofwat show there is work for Haslett to do. A strategic update promised before the end of September will be closely scrutinised.

Motorpoint

There may be plenty of potholes for a car retailer to avoid, but Motorpoint appears to be motoring ahead based on its full-year results.

The company is outpacing the wider market as it posts record retail sales volumes, supported by investments in tech, data utilisation and use of AI in its operations.

Management have demonstrated a firm hand at the wheel of the business. While CEO Mark Carpenter did note recent instability around inflation and interest rates, he sounded a cautiously optimistic tone on the outlook, citing the ability to take share from the competition. 

The opening of a new large store in Leeds this summer is evidence that Motorpoint remains in a high gear when it comes to growth despite the uncertain backdrop.

A particularly fruitful area for Motorpoint has been the ‘Sell Your Car’ online platform – allowing it to source supply of new vehicles at a cheaper rate by buying directly from ordinary punters.