Supermarket relief over loyalty probe, loss-making Pennon has much to do, Just Eat to leave UK stock market, Pets at Home counts cost of Budget and subdued market and EasyJet reports record summer

“The FTSE 100 was the outlier in a sea of red across the main European indices. The UK index nudged up 0.16% to 8,271 thanks to strength in the mining and pharmaceutical sectors,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“Investors are growing increasingly concerned that Donald Trump’s next tariff target is continental Europe, creating another potential headwind on top of the existing one in the form of lacklustre economic activity.”

Supermarket Sector

“The grocery sector will be breathing a sigh of relief that the competition watchdog isn’t kicking up a fuss about loyalty schemes. The Competition and Markets Authority said in its review of 50,000 loyalty-priced products that they offered genuine savings for shoppers. There was little evidence of supermarkets inflating normal prices to make loyalty promotions seem like a better deal.

“Companies like Tesco and Sainsbury’s have been going hard on loyalty schemes in a bid to attract more shoppers and as part of their fight against discounters Aldi and Lidl. Had the CMA found improper behaviour around loyalty promotions, it could have thrown a spanner in the works and derailed one of the main cogs in their operating strategy.”

Pennon

“The water industry has come under significant pressure in recent years for sewage spills, parasites in the system, and a general poor quality of water.

“Pennon has been one of the worst offenders for illegal sewage spills, water contamination and leaks. The company’s reputation has been shattered and it’s now trying to rebuild credibility with customers and investors. Chief executive Susan Davy even started her financial results commentary by saying ‘water companies are rightly being challenged to do more’.

“Pennon has made a lot of mistakes and it’s now focused on getting things right while investing for the future.

“A loss-making set of results underlines the need for change in the business and this is not going to happen overnight. Given the scale of negative publicity around the company, there is no more room for mistakes.”

Just Eat Takeaway

“Just Eat Takeaway is to become the latest company to scrap its London listing in a bid to cut costs and complexity. It will focus on a primary listing in Amsterdam, which makes sense given its London liquidity and trading volumes were low.

“Changes to the UK listing rules were meant to make the London Stock Exchange more attractive, drive up the number of flotations and stop the flow of companies leaving the market. So far, it’s too early to make any judgment whether those changes have been a success. It can take six months to prepare for an IPO which implies a greater volume of flotations won’t emerge until the new year.

“The listing changes were never going to result in lots of companies with secondary listings in London upgrading to a primary listing, so Just Eat’s impending departure is not a black mark on the LSE’s record.

“The changes are more beneficial to companies that are only listed in London and which previously didn’t qualify for the FTSE indices under the old rules because they had chosen a tier-two category for various reasons such as looser regulation. Under the new system, they can move to the ESCC listing category in a bid to qualify for the indices.

“For example, Deliveroo has already switched from a second-class listing under the old system to the new ESCC category and it is now primed to join the FTSE 250 at next month’s quarterly index reshuffle. Coca-Cola Europacific Partners and Oxford Nanopore are next in line, with the Coca-Cola bottling company expected to join the FTSE 100 and the science expert eyeing the FTSE 250, both at the March 2025 reshuffle.

“If anything, we’re likely to see more companies in Just Eat’s situation think hard about the need to have secondary listings in London if their primary listing on another exchange is functioning well and they are looking for ways to cut costs. If trading is thin in London, it’s hard to justify the costs of retaining the listing.

“Where it makes sense to have a secondary listing, at least on an interim basis, is when there is M&A. For example, US-listed International Paper is buying UK-listed packaging group DS Smith in an all-share deal. International Paper says it will establish a secondary listing in London so DS Smith investors have continuity, offering them a chance to retain exposure to the business via the new parent company and doing so via UK shares. Whether that’s a long-term measure is another thing, particularly as many UK investors now have experience buying and selling US-listed shares.”

Pets at Home

“The latest update from Pets at Home will have left shareholders howling as it reveals vulnerabilities on several fronts.

“The changes in the Budget are unhelpful to Pets at Home given it employs lots of people on relatively low wages. More worrying is what the firm describes as a ‘unusually subdued’ pet market.

“After a period during the pandemic when it felt like every household was keen to add a furry friend to the mix, it’s perhaps understandable to see a slowdown. However, Pets at Home is also vulnerable to pet owners going to non-specialists like supermarkets in search of a better deal. Loyalty schemes, which have been a useful initiative for the group, will only take you so far when consumers are highly cost-conscious.

“The veterinary business is doing well, both in terms of revenue and margins, and helping to make up for shortfalls on the retail side. This raises the stakes for the regulatory probe into this sector which isn’t set to conclude until well into next year.

“Pets at Home has expressed confidence its growth strategy in the veterinary space won’t be affected but there is a risk that, like a postie who’s turned his back on an aggressive pooch, the company faces an unexpected bite from the competition authorities.”

Easyjet

“Results from EasyJet offer the latest evidence that a week in the sun remains a non-negotiable for many people.

“Another record summer from the group, with planes running close to capacity despite a big expansion in its fleet, means CEO Johan Lundgren is leaving the controls with EasyJet in decent shape.

“One of Lundgren’s strategic initiatives – the big expansion into package holidays – is paying off and his successor, Kenton Jarvis, will be looking to build on this success. The market share gains made by this part of the business suggests the EasyJet brand has real clout with holidaymakers.

“Jarvis still has a challenge on his hands to steer the company towards some ambitious medium-term profit targets and it’s fair to expect some turbulence along the way given the wider supply chain issues in the sector and exposure to volatile fuel prices.

“However, EasyJet is in much better shape than it was a few years ago and that’s reflected in a big uplift in the dividend which signals confidence in its future trajectory.”

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