Raspberry Pi passes first post-IPO test, Card Factory profit slumps and Smiths Group misses forecasts

“China has been searching for solutions to its economic growth challenge for some time, and stimulus measures haven’t really worked. It’s gone from being a trailblazer with supersonic economic expansion to a country whose batteries were close to running out of energy. It’s now gone all-in with its bet on getting the economy back into top gear and that’s driven the mother of all rallies on the Chinese stock market,” says Russ Mould, investment director at AJ Bell.

“The Shanghai SSE index jumped 4.15% while the Hang Seng soared by 4%, indicating that investors are pleased with plans to lower borrowing costs and allow banks to increase their lending. That had a direct read-across to the FTSE 100 and its army of commodity producers who should benefit from greater economic activity in China and for London-listed companies which do business with consumers in the country including Burberry and Prudential.

“The Chinese government doles out economic incentive measures as freely as parents bribe children with treats to get chores done. They work for a few minutes but the interest quickly wanes. Whether the latest stimulus programmes produce longer-lasting gains for the Chinese economy remains to be seen, and history suggests we should have low expectations.

“John Deere investors shrugged off the prospect of new tariffs if Donald Trump wins the US presidential election. The presidential candidate said in a speech that he would put a 200% tariff on everything John Deere makes in Mexico and sells in the US as retaliation for the agricultural equipment company building a new manufacturing operation in the neighbouring country. Donald Trump’s vision is to protect American companies but his threat against Deere could do the opposite. Suffice to say, the shares didn’t fall much on the news as investors shrugged off the threat.

“UK retailer Dunelm fell by 6.3% to £11.56 after its founder Bill Adderley sold 10 million shares. The Adderley Family still own 37.6% in aggregate so the 4.9% stake disposal by Bill Adderley doesn’t really make him and his relatives less important as shareholders. The reason the stock fell was simply placing such a large number of shares below last night’s closing price. It’s normal to see a small discount to shift a large block of stock.”

Raspberry Pi

“The golden rule of any IPO is not to miss earnings expectations in the first year as a listed business. Raspberry Pi has so far managed to navigate a few twists and turns to stay on track, but the performance isn’t perfect.

“First-half volumes were lower than expected and there is more stock than usual in the supply chain still waiting to be sold. The company implies that the inventory issue will sort itself out, but it’s a major risk for investors to consider. What’s helped to keep Raspberry Pi out of the danger zone is sales being skewed towards higher margin products, boosting overall profit.

“Having enjoyed a big bump in the share price at IPO, Raspberry Pi had been struggling to sustain this strength in recent weeks. However, the results have been well-received and put a new spring in its step. Certain investors will be staying on the sidelines, waiting for another set of earnings to be reported before making a firm judgment on whether to buy the shares or not.

“The latest figures offer some reassurance but the fact they aren’t perfect could leave some lingering doubts about the company in parts of the investment community. So many stocks have failed to live up to their IPO hype and that’s left certain investors sceptical about rushing to back new flotations until they have a longer track record as a listed company.”

Card Factory

“When you sell a keenly priced product your profitability is sensitive to any increase in costs, and that’s been borne out by the latest results from greetings card retailer Card Factory.

“While the company saw a decent increase in group sales, particularly given poor weather and continuing uncertainty in the economic backdrop, increases in freight costs and the national living wage have seen that translate into an alarming drop in first-half profit.

“Card Factory may have been flagging such an impact but seeing it in black and white in the results does seem to have spooked investors, with the shares also having run hot into the release of the numbers.

“Being a budget option has been key to Card Factory’s success, with the company also benefiting from the woes of rival chain Clintons. There is now an onus on the company to demonstrate it can claw back some margin in the second half of the year.

“For now, management are sticking with both short and medium-term guidance and if this is achieved then today’s announcement will likely be viewed as a blip, rather than anything more serious.

“The increase in sales at least suggests there remains robust demand for Card Factory’s value offering of gifts, balloons, cards and party supplies. Britons don’t look to be going out of the card-giving habit any time soon.”

Smiths Group

“While there were some positive elements to engineering outfit Smiths Group’s results, it is difficult to dress up the fact that headline profit was below consensus expectations.

“This will come as a minor blow to recently appointed CEO Roland Carter but is unlikely to put him under any immediate pressure with shareholders.

“The company chalked up decent organic revenue growth, with the previous financial year always likely to be a hard act to follow. Letting the side down was electronic components arm Smiths Interconnect which was unable to protect margins from a decline in volumes.

“Carter’s plan for the business, unsurprisingly given his long stint at the company before taking the top job, is to build on its existing strategy rather than doing anything more revolutionary.

“As a diversified group operating in lots of different areas, Smiths Group has often been flagged as a break-up candidate and sold its medical business in 2022. However, if the performance of the business was to decline materially then Carter might face some renewed pressure to streamline the focus of the group.”

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