Daily market update: Nvidia, WH Smith, Burberry, Persimmon

Some well-received corporate updates and limited exposure to the AI theme helped UK stocks get off on a firm footing on Thursday.

The FTSE 100 was somewhat constrained by weakness in the resources sector. Commodity prices eased back and Brent crude oil prices are bubbling around the $93 per barrel mark, a long way short of their recent highs as traders continue to weigh diplomatic efforts in the Middle East.

While Wall Street continued its recovery from last week’s tech rout on Wednesday, the leadership crisis at Nvidia weighed on Asian markets and US futures point to a somewhat nervy start to trading later.

Nvidia

Already under severe scrutiny over an affair with an alleged Chinese spy, the revelation of a further relationship with a subordinate at Nvidia has put Jensen Huang’s position as CEO in real peril.

Reports the board are meeting to weigh his future underline the seriousness of the situation and $671.4 billion has been wiped off the company’s market value since the initial revelations emerged on Sunday.

This kind of situation would be damaging at any company but is exacerbated by just how strong the key person risk is perceived to be at Nvidia. Huang is the man who led the business to become the poster child of the AI story and for a time the largest company on earth.

No real succession plan has been made public so inevitably investors will ask questions about whether Nvidia can be as successful if Huang departs.

Any potential replacement would certainly have to earn credibility with the market and, even if Huang stays, this whole situation will be a cloud hanging over Nvidia for some time to come.

WH Smith

The job facing Leo Quinn, the corporate Mr Fixit at the helm of WH Smith, just isn’t getting any easier.

The company chalked up a significant full-year loss as the company took a raft of restructuring and impairment charges but, more worryingly for the business, sales look very sluggish.

This includes in the North American business which is key to any ultimate recovery in WH Smith’s fortunes.

Quinn came in to turn things round after an extremely tricky period for the business. Having sold off its legacy high street business in June last year, WH Smith was supposed to be forging ahead as a travel-focused retailer benefiting from the captive audience to be found in major transport hubs.

However, an accounting scandal in its North American business, which emerged just a few months after the demerger, and the worsening geopolitical climate and surging fuel prices which have hit demand have combined to shatter sentiment towards the group.

Rebuilding it is not likely to be the work of just one or two reporting periods and while cash generation remains positive it did fall year-on-year. Improving cash flow will be crucial in restoring the credibility of the business with the market.

Burberry

Burberry is starting to get on a roll. A fifth consecutive quarter of growth is a big check in the box for CEO Joshua Schulman, the company beating expectations in the second quarter.

The decision to return to Burberry’s roots, having flown too close to the sun like Icarus in pursuit of higher end customers, is paying off. Sales of its iconic trenchcoats were strong in the period.

However, leaning on its heritage hasn’t meant living in the past. Burberry has demonstrated some success in engaging aspirational Gen Z shoppers and is also growing its web-based sales at pace.

The fashion world is capricious, so investors will take nothing for granted but a return to profit for the first half is a notable milestone in its recovery plan.

Persimmon

Persimmon delivered a set of results which provide solid foundations for the company to hit its full-year expectations. An increase in sales is an impressive achievement given how difficult the market backdrop is and Persimmon seems to be making a better fist of things than some of its rivals.

Higher borrowing costs are unhelpful to say the least to the property market and, while the state backed Your First Home scheme is a welcome boost, the Budget revealed it isn’t coming until April. This could potentially delay demand as first-time buyers wait for its launch before making their property purchase.

Management deserve credit for steering the company through these headwinds. However, warnings of significant cost inflation to come, while not a surprise, offered a reminder of the challenges still in front of the housebuilder.

Something that can help is Persimmon’s vertically integrated model, where it makes its own bricks, timber frames and other components.

BAE Systems

Investors have grown less sure about the defence demand story. Pressure on government finances and political changes have raised doubts about the level of will which exists to keep pursuing increased military spending.

In this context, BAE Systems results were reassuring as the company raised its free cash flow guidance and revealed a bulging order book. Although investors may be mindful that the boost to cash flow relates largely to advance payments, which essentially pull forward cash from future years.

Rolls-Royce

Having lost some of the soaraway momentum seen in recent years, Rolls-Royce at least reassured investors on trading with its latest quarterly update.

While there were no upgrades to forward guidance, the accompanying language from Tufan Erginbilgic hinted at scope for the company to do better than expected with its full-year results.

Erginbilgic has fine-tuned the business, and it is now performing well in its core areas of focus – including wide-body long-haul jet engines. Attention may now turn to the company’s efforts to return to the larger narrow-body short-haul market after a 15-year absence and to progress its small modular reactor nuclear technology.