Daily market update: UK GDP figures, WH Smith, CoreWeave

“A jump in retail sales in February and confirmation the UK economy managed to grow in the final quarter of 2024 were treated as small wins by the market. While not earth-shattering data, investors are taking any nuggets of good news they can get in the current fragile environment,” says Russ Mould, Investment Director at AJ Bell.

“Both the FTSE 100 and FTSE 250 indices advanced on a day where other major indices in Europe went into reverse. Sainsbury’s, Kingfisher and Marks & Spencer all enjoyed a bounce on the retail sales figures, while utilities were also in demand.”

WH Smith

“Talk there were only a few parties left in the race to buy WH Smith’s UK high street stores implied the retailer might have to accept whatever it was offered.

“Ahead of the deal with Modella, there was speculation it would get £100 million for the stores. A £76 million enterprise value is disappointing, yet something is better than nothing for WH Smith.

“In the grander scheme of things, the deal frees up management to focus on the stronger part of the group. No longer will they have to run to stand still and keep the UK stores washing their face. Instead, it’s all about growing the travel estate where the prospects are much stronger.

“A potential reason why the deal was priced below expectations is the fact the buyer isn’t getting the WH Smith brand. There was speculation the name would be included in the deal as the brand strength was a major asset to anyone looking to keep the stores running as per normal. Instead, the WH Smith name will be retained for the UK travel stores and sites in hospitals.

“It might have been that Modella didn’t want the brand in an effort to get the purchase price for the store network as low as possible. The sites will be rebranded TGJones, a name that currently means nothing to shoppers. Modella faces the risk of being lost in the crowd on the high street, surrounded by vape shops and discount retailers, none of which command shopper loyalty.

“The WH Smith brand was the key reason why its stores managed to stay alive in a crumbling high street environment. Shoppers knew they could depend on the retailer for certain items and they kept coming back for more. Take the brand away and there is a major risk that footfall to these stores plummets under the TGJones name.

“TGJones will have to do something remarkable on pricing to lure in the punters, or Modella might simply be using that name as a temporary banner before striking deals to turn individual stores into alternative use.”

CoreWeave

“It was originally hyped as a gigantic IPO that had the potential to set the investment world alight, offering an alternative way of playing the AI theme. Instead, CoreWeave’s IPO has joined the scrapheap of listings that haven’t lived up to expectations.

“Fundamentally, the IPO offer didn’t pass the scratch and sniff test. The deeper prospective investors looked, the less they appeared to like it. CoreWeave’s IPO was like picking up a meat pie that looked tasty from the outside but rotten in the middle.

“The stock listing has been priced below expectations and it looks like the company has leant on major customer Nvidia to help prop up the flotation. That’s not a good sign. An IPO priced lower than expected implies limited appetite from institutional investors.

“CoreWeave’s business model involves owning a big stockpile of Nvidia chips, putting them in data centres and renting out the space and processing capacity to third parties. Had it floated a year ago, investors might have been racing to buy the shares as it was a clear way to ride the AI gravy train.

“It looks like the IPO has come too late to jump on the bandwagon as AI stocks have gone off the boil this year, dampening investor appetite to back someone else in the space.

“CoreWeave’s biggest customer, Microsoft, is rumoured to be scaling back its growth plans for data centres and reportedly dropped some of CoreWeave’s services ahead of the IPO. Many of Nvidia’s customers are now developing their own chips so as to be in control of their own destiny. Both factors imply headwinds for CoreWeave in the future.

“There is also the issue of CoreWeave having a significant amount of debt to pay back or refinance over the next two years.

“Once you add up all the negative factors, risks and uncertainties around long-term growth prospects for the business, it’s no wonder that sparks didn’t fly with the IPO pricing. The next test is to see if it wins any fans on the open market when the shares start trading later today.”

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