Daily market update: Royal Mail, Bunzl, Telecom Plus, Heineken, Gear4Music

The FTSE 100 was lower on Tuesday after yesterday’s tech sell-off in the US.

The selling in SpaceX, as its trajectory starts to reverse following a blockbuster market debut, has had a knock-on effect on some of the UK vehicles with stakes in the business. The mining sector in London was also lower amid concern about the global economy.

The market reaction to the latest political news in the UK is relatively measured after Keir Starmer’s decision to step down as prime minister. 

Gilt yields held firm despite uncertainty around whether there will be a smooth succession for Starmer’s replacement or a leadership contest.

Andy Burnham has already made attempts to address concerns he might rapidly increase borrowing and/or abandon fiscal rules should he become PM.

Royal Mail

There may be frustration among some investors that Royal Mail is only starting to deliver after its time on the stock market has come to an end.

The privatisation of Royal Mail, while not quite a Tell Sid moment, generated plenty of investor enthusiasm which ultimately wasn’t matched by the company’s showing as a public company.

Under the ownership of Czech entrepreneur Daniel Kretinsky, the previous trend of Royal Mail struggling and its international GLS parcel firm coming to the rescue seems to have been reversed.

An agreement with unions, price increases and controversial service changes, which have attracted a fair degree of criticism, have helped Royal Mail increase profit despite a big increase in costs. Arguably it has been easier to make these changes outside the glare of the public markets.

On the other hand, GLS has suffered from regulatory changes in Italy and a tricky trading environment in Canada.

Bunzl 

After a year of pain caused by issues in its North American operations, distributor Bunzl has regained its footing and delivered good news. The timing is fortunate given speculation that activist investor Elliott has taken a position ahead of a potential campaign to drive change. 

Bunzl has long been seen as a ‘steady as she goes’ business, delivering goods that companies need to run their day-to-day operations. Last year’s profit warning and share buyback pause took the shine off the stock. Bunzl fell to its lowest price to earnings ratio since the Covid global market sell-off in 2020 and left it vulnerable to either activist shake-up or a bid. One has subsequently emerged, and investors might now wonder if the other does too. 

The North American operations now look to be in a better shape, and Bunzl has upgraded the group outlook for 2026. It’s a welcome turn of events, but investors don’t seem blown away with only a marginal lift in the share price. 

Telecom Plus

Telecom Plus, which trades as Utility Warehouse, had already warned on profit ahead of full-year results but that didn’t prevent a major sell-off in the shares as the company revealed some fresh surprises to upset the market.

Warm winter weather was a major culprit behind the warning back in April but the concern alongside the latest results is a big investment plan which is set to constrain profit in the coming half-decade.

Telecom Plus has enjoyed success from its strategy of bundling energy, broadband, mobile and home insurance together for customers and seen market momentum as a result. 

The shares are now back at levels last seen nearly 14 years ago, with investors far from convinced on the merits of the new strategy, not helped by the recent downturn in trading.

Money is being pumped into strengthening its offering, expanding sales channels and marketing. The decision to cut the dividend nearly in half and replace it with a buyback programme reflects management’s perception that the shares are overly discounted.

At least shareholders have decent visibility on how these decisions are made but they appear far from convinced of the merits of this move.  

Heineken

New Heineken boss Rafael Oliveira will be looking to refresh the business as he brings an outsider’s perspective to a family-controlled business which has previously been run by insiders.

Oliveira is also coming from a more sober background in coffee and tea as Heineken looks to address the challenges posed by inflation and shifting consumer trends which are seeing people drink less booze, particularly younger demographics.

There will be relief the company has settled on a candidate after a fraught succession process. Oliveira’s fixed term of four years suggests the company would like to return to an insider in time but that may depend on how successful he proves in the role.

Gear4Music

The tune Gear4Music is getting out of its business is str chord with investors as its enhanced competitive position allows it to beat expectations.

The company continues to benefit from the recent exit of two online rivals who had sought to compete aggressively on price and from smaller bricks and mortar retail rivals going out of business.

Gear4Music isn’t resting on its laurels, adding an in-house courier team for premium items and it is on track to open an automated warehouse in the current financial year.

While the involvement of AI in music production is a bone of contention for many, Gear4Music is employing it to optimise product availability, tailor its offering and deal with customer queries.

Increasing sales for own-brand instruments and equipment is providing a boost to profitability and cash generation, though in the year just gone third-party volumes increased more rapidly than own-brand sales as Gear4Music absorbed demand from competitors which went bust.