Daily market update: Babcock, Marks & Spencer, Warehouse REIT, Halfords

“Markets were risk-on following the Middle East truce,” says Russ Mould, Investment Director at AJ Bell.

“Miners, oil producers and airlines were in demand on the UK stock market, helping to drive the FTSE 100 0.3% higher to 8,780. There was a clear rotation as investors moved away from more defensive-style stocks such as utilities, tobacco and consumer staples.”

Babcock International

“Shares in defence and engineering contractor Babcock have more than doubled year to date so a positive set of results was needed for investors to sustain their enthusiasm.

“Largely that’s what they got – the numbers themselves were strong but so too was the accompanying rhetoric as the company talked about a ‘new era for defence’. A meaningful increase in medium-term guidance won’t have hurt either.

“Babcock, which plays a significant role supporting the UK’s nuclear submarine programme, announced an 11% increase in revenue and an eye-catching 50% increase in operating profit – albeit boosted in part by a one-off payout for a property disposal.

“The company looks set to be a beneficiary of an increased push on nuclear power given its expertise, amid a hunt for reliable energy sources which can also help reduce carbon emissions.

“The shift in foreign policy under the Trump administration is pushing European countries to up their military spending, although much of this will be yet to come through, so the fact Babcock is already seeing improved trading is encouraging.

“Some eyebrows may be raised at the decision to launch the company’s debut share buyback when its share price is at its highest level in more than a decade and not a million miles off its all-time high from 2014. Although, in fairness, this is merely following the recent trend for UK companies to return an increasing proportion of the capital they dole out to shareholders this way.”

Marks & Spencer

“New data confirmed fears that the recent cyberattack had a negative impact on Marks & Spencer’s sales. Its shares were in flat in a rising market after figures from research group NielsenIQ showed a slowdown in food sales growth over the 12 weeks to 14 June. The retailer grew sales by 9.1% year-on-year over the period, down from 10.8% in May and 14.7% in April.

“The cyberattack resulted in various systems going offline and that affected supplies coming into its stores. The incident was chaotic for the company and its customers but Marks & Spencer is now working hard to regain trust. Its food business has long been the shining star of the group and it is unlikely to be too worried about a short-term blip in the sales history.

“More of a challenge will be winning back customer support for its clothing arm, which had finally found its groove just before the cyberattack knocked the business for six.”

Warehouse REIT

“Takeovers continued with pace as Warehouse REIT became the latest investment trust to be subject to a bidding war. Blackstone had fought hard to win over the board and it looked like a 109p per share cash deal on 4 June had sealed the deal.

“In a surprise twist, Tritax Big Box REIT has come out of the blue with a 111p per share bid made up of shares and cash.

“Shareholders are getting a higher price than offered by Blackstone and they get ongoing investment exposure to the assets should they choose to keep the Tritax shares paid as part of the offer.

“Blackstone had previously said its 109p was its best and final offer but reserved the right to increase the price if someone else expressed interest in the business.

“History suggests that such battles rarely end on the first competing bid. Expect Blackstone to come back with more and for the drama to unfold.”

Halfords

“In the same way as its mechanics get under the bonnet to adjust a vehicle so it can stay on the road, Halfords’ management has also been fine-tuning the business to eek out small margin gains.

“Full-year results show the company has moved up a gear, with better-than-expected profit and a nice bump in the dividend for investors. What’s clear, however, is that this is going to be a slow burner in terms of making Halfords fit for the future.

“Despite efforts to do more in motoring services, which would increase the proportion of earnings from non-discretionary spend, it is still at the mercy of consumer confidence for a big chunk of its business. It flags a cautious outlook for consumer spending which means Halfords is going to be pedalling hard uphill to make further progress this year.

“Halfords is very much a self-help story and this journey is still in its infancy. The arrival of a new chief executive a few months ago should help to focus minds internally. Cycling-related sales have been strong of late, helped by the sunny weather, yet the ongoing weakness in the tyre market is something to worry about.

“Tyres should be Halfords’ bread and butter yet drivers don’t want to hand over the cash. Drivers might be holding off from replacing unsafe tyres but that is a dangerous move on their behalf and at some point, they will have no choice but to get new ones. The problem is that many of them are trading down to cheaper alternatives, meaning Halfords is going to have to do something radically different to get this part of its business fired up again.”

FedEx

“FedEx is often seen as a good indicator of the health of the wider economy thanks to the breadth of its exposure across areas like transportation, logistics and e-commerce. Therefore, its latest earnings have wider implications than just for the group itself.

“The fact the company didn’t feel able to deliver an outlook for the current financial year feels quite telling, as does its downbeat guidance for the current quarter. This may result in some consternation in the markets beyond just the fortunes of FedEx itself. Tariffs were largely blamed for the difficult outlook, with the company flagging a hit on Chinese exports to the US.

“The stronger-than-anticipated earnings for the fourth quarter were largely ignored, which is pretty unsurprising given the company had already slashed its full-year guidance for the 12 months to May twice in the last six months.

“The company is contending with lower volumes and reduced demand and this has offset the impact from its self-help measures. These measures include the planned spin-off of its FedEx Freight decision through a separate stock market listing. Unsurprisingly, the company is also looking to further reduce costs – aiming to take out another $1 billion worth in this financial year.”

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