Daily market update: Mitchells & Butlers, H&M, Babcock, DFS

There was a sea of red across European markets as healthcare, real estate, financials and industrial stocks were out of fashion, says Russ Mould, Investment Director at AJ Bell.

Weakness in names such as HSBC and AstraZeneca would suggest a more cautious tone among investors, but not a complete shift in sentiment.

Futures prices imply progress for Wall Street later today and there are several examples of positive corporate news flow pushing up stock prices, which implies that we’re nowhere near tin hat territory. For instance, H&M rallied hard on quarterly results, and safety expert Halma was bid up after yet another reassuring update.

It’s the end of the road for Goldman Sachs’ investment vehicle, Petershill Partners, as a listed entity. The alternative investments specialist had failed to win over the market since floating in 2021, so it is going to return capital to investors and delist.

Mitchells & Butlers dived after revealing weaker sales in London and among its more premium offerings, while also flagging persistent cost inflation pressures.

It’s all very well installing solar panels to reduce energy usage, but that’s not going to solve its problems at the click of a finger. Fundamentally, Mitchells & Butlers needs to either put up its prices or greatly increase sales volumes so it can achieve economies of scale such as bigger buying power for raw ingredients.

H&M

H&M is on the comeback trail. It is making progress in a difficult retail environment, fighting off competition and upping its game with designs that encourage shoppers to keep coming back for more. It has enjoyed stronger margins, inventory is being run down, and there has been a good reception to its autumn range.

That’s a big improvement for H&M which has been through a patchy period in recent years. Unfortunately, there are still negative issues to overcome. Tariffs are set to impact margins in the current quarter, and it is still having to offer some discounts to keep the tills ringing.

Investors don’t appear too worried as there is more than enough good news in the past quarter to suggest that H&M is digging itself out of a hole.

The rise of Shein has forced H&M to rethink its position in the market. People who want cheap clothes are buying online from the Chinese seller or from Primark, forcing H&M to make big decisions. It either had to go head-to-head with the discounters or reposition itself as a place to buy better quality items still at affordable prices but not rock-bottom ones. H&M is going down the latter path, offering trendier clothes and early evidence suggests the strategy is working.

Babcock

The uncertain geopolitical backdrop and push for European countries to boost defence spending have seen defence and nuclear engineering contractor Babcock score as one of the top performers in the FTSE 100 this year.

The negative response to what is a fairly run of the mill and in-line trading update must be seen in this context, with the shares pausing for breath after more than doubling so far in 2025.

Babcock has secured some meaningful contracts in the five months to 31 August and the launch of its new AI product Nomad – providing real-time intelligence to military and security clients – shows it is engaging with new technologies. Not too many businesses can call the macro environment supportive right now, but in an increasingly fractious world, Babcock is one.

A long-term push towards nuclear is also supportive for Babcock given its capabilities and the company is busily returning cash to shareholders. The £200 million buyback announced in July is now expected to be fulfilled by the end of the year.

Babcock may face some questions about whether purchasing its own stock is the best use of capital when it is not a million miles away from its all-time highs marked in 2014. However, it is a display of confidence in the group’s prospects.

DFS

In what is a tough market for discretionary items, DFS achieving a return to profit and growth is no mean feat.

What will give investors further comfort is the significant cash flow generated in the period, which has enabled the company to pay down debt, and the substantial increase in order intake.

The company is leveraging its strong market position and initiatives like investing in product innovation and utilising brand partnerships appear to be paying off. The company’s ability to handle delivery itself also represents an edge over some of its rivals.

Even in a tough economic environment people will still have some appetite to refresh their living spaces and replace worn furniture and DFS needs to make sure it gets the basics right – having the right products in the right places and the right price points to get the tills ringing.

A key measure of the company’s progress might come when it feels comfortable and confident enough to reintroduce the dividend. For now, the focus is on further reducing its borrowings.