Election debate fails to unnerve markets, Rightmove rejects bid proposal, Zara owner Inditex upbeat, WH Smith bounces back, Rentokil warns, Dunelm soldiers on

“News the UK economy flatlined in July, against expectations for a modest increase in activity, painted a negative picture for the domestic-facing companies on the UK market. However, the FTSE 100 got a boost from a dip in the pound as a large number of its constituents earn much of their revenue overseas,” says Russ Mould, Investment Director at AJ Bell.

“One compensating factor for those who do their business largely in the UK, including in areas like retail, real estate and housebuilding, is that fragile economic figures might persuade the Bank of England to consider increasing the pace of interest rate cuts. This was reflected in modest moves higher for the likes of British Land, Next and Taylor Wimpey in early trading on Wednesday.

“A tense US presidential election debate between Kamala Harris and Donald Trump only had a limited impact on the markets. While polls suggest people’s voting intentions swung more towards Harris as a result of the debate, the election is still going to be a close call.

“Cryptocurrency was the main focal point for market movements. Trump is seen as being pro-cryptocurrency and a weaker position in the polls following the debate might explain why the price of bitcoin retreated by 2%.

“After a decent showing on Wall Street last night, futures prices indicate the main US equity indices giving up some of these gains when markets open later today. However, the VIX measure of volatility fell back, implying that investors are feeling less agitated.”

Rightmove

“Rightmove has rejected REA’s takeover proposal. The language used in Rightmove’s statement implies it isn’t an outright ‘no at any price’, as the property portal said it ‘carefully considered’ the proposal. That phrase suggests it is simply ‘no at the current proposed price’ and that the situation might change if REA digs deeper.

“A 27% bid premium was never going to be taken seriously by the company or its shareholders. REA would have to stump up a lot more to get the deal over the line. Now comes the interesting part where we see if REA is serious in its pursuit for Rightmove, or whether it was simply trying its luck at a bargain price.

“Rightmove has two key characteristics which theoretically deserve an above-average bid premium. First, it is the UK market leader in its field and second, it is a unique asset on the London Stock Exchange. Shareholders know it holds these qualities and they aren’t going to let it go without proper compensation.”

WH Smith

“A £50 million share buyback and a decent performance from WH Smith’s travel operations outside of North America have given a sparkle to its latest trading update. There are also tentative signs of improvement in North America where its travel arm has been stuck in the mud for a long time. It’s a good start but WH Smith needs to show it can sustain this momentum if it really wants to prove to the market that its growth story has legs.

“Shares in WH Smith had been drifting sideways for the past few years as North America hasn’t been the hotspot the company previously implied. The prospect of a weaker US economy clouded the outlook and the UK high street stores have continued their slow decline. These factors have led some shareholders to question why they should continue to hold the stock.

“The latest trading might tempt some investors to take another look but it is too early to declare that the business has been nursed back to full health.”

Inditex

“The owner of Zara and Pull & Bear struck a remarkably upbeat tone in its half-year results. Inditex has delivered a solid performance in a choppy market, once again living up to its reputation of being one of the world’s best-run retailers.

“Autumn ranges have got off to a good start and margins improved in its first-half period. Sales have been growing at a faster rate than operating expenses and inventory levels have fallen, implying good turnover of stock and avoiding the fate of many other retailers who have been slashing prices to shift unsold clothes.”

Rentokil

“You would think pest control is a stable business with consistent demand but that consistency hasn’t been reflected in the performance of Rentokil of late.

“Its latest warning is a bit of mess. While its business in the rest of the world is getting on OK, the company is struggling in North America.

“Weaker than expected revenue has been compounded by problems of the company’s own making such as insufficient control of costs hitting profitability.

“It seems in its desperation to boost revenue during the peak season, the company had too many staff. It also shelled out on overtime as it looked to boost business by increasing weekend working. This lack of discipline doesn’t reflect well on the group, with measures to ‘right-size’ its workforce amounting to closing the stable door after the horse has bolted.

“Investors who were sold the merits of the company’s big Terminix acquisition in the US may now be smelling a rat. The company was widely perceived to have paid a high price at the time and bringing the business fully into the fold is proving a difficult challenge.

“Today’s news will provide further ammunition for activist Nelson Peltz, who joined the shareholder register in June. Current management will be shifting nervously in their seats, with the pressure to take dramatic action, including moving its primary listing to the US, only likely to increase.”

Dunelm

“Homewares retailer Dunelm doesn’t have the benefit of a buoyant consumer backdrop, but it is not letting that prevent it from making tangible progress as a business.

“Its latest results may not have got investors jumping up and down, with management fairly downbeat on the backdrop, but the company is focusing on what it can control by increasing its market share.

“The focus on boosting its online operation, strengthening brand awareness and providing the right products at the right price point in the right places have helped make Dunelm one of the key success stories in the British retail sector in recent years.”

These articles are for information purposes only and are not a personal recommendation or advice.