May 30, 2017

Pegler’s market report – 30.05.17: A weaker pound helps the stock market once again

As published in the Brighton Argus (30.05.17) Business on page 21 under the title Pegler’s Market Report:

A weaker pound helps the stock market once again

A YouGov poll, the first since the devastating Manchester terror attack, put the Conservative Party on 43pc, down one percentage point compared to a week ago, while Labour gained 3 points. The opinion poll jitters undermined the pound, which helped the UK leading market index scale new peaks. With around 60pc of the UK top companies (ranked by market capitalisation) revenues coming from outside the UK, a weaker pound supports export-oriented companies, while making shares cheaper for overseas investors.

Mountain Warehouse has reported record profits, marking 20 years of uninterrupted growth. The UK’s largest outdoor clothing business said that sales were up 30.8pc in the year to the end of February, to £184.4m, with pre-tax profits up 22pc to £19.8m from £16.2m last year. The company managed the 2008 downturn well, passed 100 stores in 2010 and has been on a steep climb ever since with an increasing online and international focus playing a more important part in its business.

Keeping on the retail theme, Marks & Spencer’s profits plunged 64% in the year to April, although its performance was slightly ahead of analysts’ expectations. Pre-tax profits dropped to £176.4m due to an “expected decrease” in clothing and home sales as well as restructuring costs. Group revenues grew just 0.6% to £10.6bn. For the last quarter, like-for-like clothing sales fell 5.9% and like-for-like home sales were down 2.1%. However, chief executive Steve Rowe said that the retailer is “starting to stabilise” its clothing and home market share. He added that M&S’ new Food stores “continue to exceed expectations”. The dividend was maintained at 18.7p.

British insurer Legal & General, which has significant operations in Hove, will move some of its investment management operations to Ireland as part of its strategy to ensure it can continue to serve its customers after Brexit. In a win for Dublin’s campaign to attract firms in the wake of Brexit, L&G’s asset management division, Legal & General Investment Management (LGIM), will move the operations subject to regulatory approval. It said it foresaw no impact on operations and staff in other LGIM locations.

Restaurant Group has reported another period of declining sales as the firm pushes ahead with plans to revitalise the business. The parent company of high streets brands such as Frankie & Benny’s and Chiquito said sales had continued to fall, despite good weather driving more people to its pubs. New chief executive Andy McCue, who joined Restaurant Group from bookmaker Paddy Power in September, has made price cuts and simplified menus as he seeks to lure customers back to the struggling chains. However, despite news on the falling sales, its shares actually rallied as the business said it was on track to deliver profits for the full year in line with expectations.

By David Pegler, Brighton Capital Management