FTSE 100 lower, challenges in WH Smith’s pursuit to sell high street arm, tech stocks fall on China AI threat, Dr. Martens slips and Ryanair hit by Boeing woes

“The FTSE 100 was dragged down by the mining sector at the start of the new trading week,” says Russ Mould, AJ Bell Investment Director.

“Investors were largely keeping their powder dry ahead of the latest decision on interest rates from the Federal Reserve this week and big US economic releases on GDP, inflation and consumer confidence.

“Donald Trump will continue to dominate the headlines as the supposed 1 February date when tariffs will be introduced on several countries looms.”

WH Smith

“The timing looks odd regarding a potential sale of WH Smith’s UK high street operations. It has hoisted the ‘for sale’ flag precisely as the retail sector is entering a downturn, led by a cautious consumer and a rise in costs thanks to Rachel Reeves’ Budget decisions.

“Negative sentiment towards the sector could encourage potential buyers to seek a bargain price as they would have a good argument as to why the stores and operating business might not be as valuable as WH Smith thinks.

“The valuation paid will be a barometer for how high street real estate is perceived and valued either as an ongoing retail property or a repurposed facility, if indeed a site can be effectively repurposed. Interestingly, the sale could also be a classic test of the government’s implied loosening of planning laws.

“WH Smith might have been better to wait until the economy is stronger before looking at its options for the business.

“Timing aside, exiting makes strategic sense and there have been plenty of clues it would happen one day soon. The travel arm is where most of the profits are made. It makes sense to sharpen the focus on what a company does best by offloading less important interests such as the high street operations.

“WH Smith’s high street stores have been woefully under-invested, with the business doing as little as possible to bring them into the modern age. The fact there is an X (formerly Twitter) account dedicated to documenting the chain’s shabby carpets and messy stores says it all.

“While they aren’t the greatest experience for the customer, the stores have still generated a steady stream of cash. Having Post Office concessions inside certain stores has also helped to drive footfall.

“There isn’t an obvious buyer for the high street business, particularly if WH Smith is looking to sell everything together rather than in blocks of stores.

“There aren’t many retailers who would want to take on an additional 500 stores in the current climate. It’s probably a step too far for Frasers, Next is making the most of the stores it already has, and B&M seems to have enough on its plate to be so bold as to snap up the WH Smith portfolio.

“CDS Superstores might be a name to watch as The Range owner is one of the few retailers hungry for more, having last year bought the Homebase brand and up to 70 stores. Alternatively, a private equity-backed consortium might want to take control and run the stores on a franchise basis, potentially keeping the WH Smith name if that was an option.

“Interested buyers may want to repurpose the high street stores for alternative use. Turning shops into gyms has proved to be a successful model for many leisure operators and the fitness industry continues to grow in the UK.”

Tech sell-off / Artificial intelligence stocks / DeepSeek

“There is a new AI challenger in town and investors are spooked at what they’ve discovered. China’s DeepSeek last week revealed how to build a large language model on a budget that can learn and improve without human supervision. Its assistant is free to use and runs off lower-cost chips and less data – implying a major challenger to the established AI names in the West.

“Investors are slowly digesting the news and portfolio readjustments are causing some of the big tech names to pull back. In Asia, AI investor SoftBank fell 8% on Monday while Tokyo Electron slipped 4.9%. In Europe, ASML crashed by 9%. Futures prices also imply a bad day for the Nasdaq when US markets open later on, with the tech-heavy index indicated to fall 3%. These market movements suggest investors are worried about disruption to what has so far been an easy ride for most stocks linked to the AI theme.

“The AI super-race is seeing new challengers emerge and not everyone is going to win. The companies that enjoyed first-mover advantage will now be under pressure to launch something even better or be left behind. It’s natural evolution – when someone launches a product or service that sees strong demand, someone else will always try to come along with something cheaper to undercut the market leaders.

“The US government – both under Donald Trump and previously under Joe Biden – have been trying to stop China from accessing Western technology. That strategy might have backfired as it looks to have encouraged China to ramp up efforts to build its own technology and we’re now seeing evidence that the country is making waves.”

Dr. Martens

“The seller of iconic footwear made a start to life as a public company as if it had its shoelaces tied together. Its latest statement is a case of one step forward, two steps back.

“The company’s big focus has been on improving the performance of its US direct-to-consumer business and restoring its revenue to positive growth in the second half. On a constant currency basis, it is on track to do so but the company doesn’t spell out if this is the case without this adjustment. Reading between the lines it likely isn’t, based on the disparity between the reported figure and constant currency figure for the Americas as a whole.

“In the Europe, Middle East and Africa region Dr. Martens’ showing is weak whatever way you want to spin it – although the company may have done its bit to protect brand integrity by not engaging in heavy discounting around Christmas.

“Performance is improving on a dismal first half of the year and the company remains on track to hit its guidance for the full year. The Asia Pacific region is performing well, albeit from a much lower base.

“While this statement is not a total disaster it will be unlikely to win over many sceptics. Dr. Martens still has a big job on its hands to rebuild its credibility with the market.”

Ryanair

“There was always likely to be some meaningful fall-out for airlines from the problems at Boeing and Ryanair has made these explicit as it lowers its passenger forecast.

“Ryanair is one of Boeing’s largest European customers so it’s not a surprise to see it suffer a material impact from all of Boeing’s woes. This is not the first time the passenger forecast has been cut.

“Ryanair seems to be confident that Boeing’s issues won’t be long term. This is backed by its decision not to place orders with any other manufacturers.

“Elsewhere, the airline beat profit forecasts by a notable margin for the three months to 31 December as fares held up better than in the previous quarter. It seems holidaymakers were keen to book last-minute escapes over Christmas and New Year.

“Attention will now turn to the crucial summer booking season. Although, like kids impatient for chocolate eggs, Ryanair will be unhappy with how late Easter is this year given the implications for the current quarter.”

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