Daily market update: Diageo, Nvidia, Ryanair, Assura

“While largely a symbolic move, the US credit downgrade from Moody’s, as well as the progress of a bill in Washington promising major tax cuts, cast a pall over the markets at the start of the week,” says AJ Bell Investment Director Russ Mould.

“Having been floored by the announcement of Liberation Day tariffs last month, stocks got back on their feet remarkably quickly, but there is still enough to suggest some lasting grogginess.

“US-related stocks and investment trusts dominated the list of losers on Monday morning in London, while precious metals miners were higher as gold and silver prices moved up and the dollar weakened.

“Significantly, the US 30-year Treasury yield flashed a warning signal as it hit the 5% mark for the first time since April, with the proposed tax cuts currently making their way through Congress, expected in some quarters to increase the US deficit.

“After a disastrous update from Mobico a few weeks ago which saw the company report heavy losses, sell its US school bus arm for less than expected and its CEO Ignacio Garat fall on his sword, there will be some relief things haven’t got drastically worse based on first-quarter results.

“There is still plenty to do to get the business back on the road but there were some bright spots, particularly in Europe, which suggest the business could be steered back on course.”

Diageo

“Investors were braced for a bad quarter from Diageo yet the drinks giant has managed to pull a rabbit out of the hat. Sales were driven by a mixture of volume and prices, with Diageo benefiting from wholesalers stocking up ahead of tariffs. That suggests the next quarter might not be as good if some of its sales have effectively been brought forward.

“Diageo seems remarkably calm about tariffs, despite guidance for a $150 million impact on the business annually. It’s no surprise to see the announcement of a new cost-saving programme, and it’s talking the market’s language by chatting about cash flow targets. These are the kind of things that excite investors and get them fired up, but there’s a big difference between saying you’ll do something and actually achieving it. Diageo has a big job to win back the market’s favour after a difficult few years and it could be a long road to recovery.

“It’s interesting to see Diageo flag potential disposals over the coming years. We might finally see a sale of Guinness and other beer brands so that Diageo is purely focused on spirits. That would make a lot of strategic sense as it could greatly improve group profit margins, meaning the business might trade on a higher multiple of earnings.”

Nvidia

“Nvidia has taken steps to make sure its chips remain the dominant technology globally for AI. It has launched a platform called Lepton that lets users access graphic processor capacity from a range of Nvidia partners. It’s effectively like going to a car rental company to see what’s in stock and to drive away with a motor.

“There are a growing number of companies like CoreWeave which specialise in renting out Nvidia’s chips to tech users. Over the past few years, we’ve seen ferocious demand for AI chips and any hot trend will naturally draw out people looking to make a quick buck, either buying in bulk to resell or buying inventory to rent out. This is fine while the party is in full swing, but good things don’t always last forever.

“Nvidia might be pitching Lepton as a way to make its customers’ lives easier, yet there is also a sense that competition is growing and so the chip giant needs to protect its dominant market position by any means possible.”

Ryanair

“Companies often find some extraordinary language to avoid stating the bare facts. Ryanair says consumer spending pressure and a drop-off in online travel agent bookings ‘necessitated repeated price stimulation’. In plain English, it had to cut prices to get bums on seats.

“This is a reversal of the trend we saw coming out of the pandemic when holidaymakers were willing to pay any price to get away, having been prevented from doing so for an extended period.

“Further headwinds for Ryanair are the problems at Boeing which are limiting its growth efforts and have forced consistent downgrades to its passenger growth targets. The airline is confident it can catch up on this missed growth but, in the current environment, investors would be forgiven for exercising some healthy scepticism.

“It was not all bad news for Ryanair with its latest results. Profit was towards the higher end of expectations and the company feels sufficiently confident about the outlook to unveil a substantial share buyback.

“Ryanair also carried a record number of passengers and is seeing ‘robust’ demand this summer with ticket prices a touch ahead of those seen in 2024.”

Assura

“Earlier in the bid battle for health facilities landlord Assura, suitor Primary Health Properties suggested investors should ignore the rival bid from private equity KKR despite it being higher given the synergies any combined entity would enjoy.

“Now the tables have turned as KKR says a new offer on the table from Primary Health, now higher than its own bid, should be spurned on the basis it might attract scrutiny from the competition authorities.

“Assura and its shareholders are in the nice situation of sitting back and awaiting the next move in a scrap which continues to drive up its take-out price.”

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