Oil prices rebound despite OPEC+ output hike; supply remains tight
With any hopes of a last-minute tariff reprieve dashed, investors voted with their feet given the implications of higher inflation, potential trade wars and a dent to consumer sentiment.
Losses in the US market were widespread, with the previously burgeoning tech sector taking the brunt of the selling, as well as the smaller cap arena where the Russell 2000 index fell by almost 3%. Nvidia (NASDAQ:NVDA) shares lost almost 9%, leaving the shares down by 17.5% so far this year, while further signs of a weakening economy – even before any retaliatory measures which may follow given the new tariff regime – completed a pessimistic session which had started brightly prior to the announcement from the White House.
The sharp declines reduced the gains in the Dow Jones index to just 1.5% this year, while the S&P 500 and Nasdaq now find themselves nursing losses of 0.5% and 5% respectively. The escalation of trade frictions inevitably spilled over into Asian markets, which were for the most part lower. The falls came despite the more promising news which has been emanating from China lately, not only on its improving economy but also on the cooling of the authorities’ previous restraint on the tech sector in particular.
Given the global backdrop, the FTSE 100 found no place to hide as a broad markdown drove the index lower. Well-received numbers from Fresnillo (LON:FRES), Beazley (LON:BEZG) and Intertek (LON:ITRK) failed to arrest a decline which included a fall of over 4% for Ashtead Group (LON:AHT) after a quarterly update, while some overnight weakness in the oil price weighed on the index heavyweights BP (LON:BP) and Shell (LON:SHEL). While the defensive nature of the index failed to impress investors at the open, the defence sector continued its gains given the unfortunate sign of the times which is likely to result in higher spending globally, with both BAE Systems (LON:BAES) and Rolls-Royce (LON:RR) progressing. The FTSE 100 nonetheless remains ahead by 8% so far this year, and this interruption may prove to be brief should the UK continue to evade the tariff tantrums being experienced elsewhere.
Greggs
In terms of strategic tweaks, there is little doubt that Greggs (LON:GRG) is on a roll. In attempting to improve every aspect of its business, it has introduced a raft of measures which add to its value offering. The group is expanding its range to include the likes of over-ice drinks and healthier options, now has an established day which extends to the evening and is expanding its outlets away from the high street to cover more bases. At the same time, Greggs is making increasing use of franchises, delivery options and its loyalty app, while also improving its logistics chain. The current estate of 2618 shops is well on the way to its longer term target of 3000 outlets.
Coming so soon after a recent trading update, there are few surprises within the numbers. Revenue of £2.01 billion was up by 11.3% on the year previous, while pre-tax profit grew by 8.3% to £203.9 million. Like-for-like sales rose by 5.5% where growth of 6.3% had been expected, with a weak final quarter which was not well received by the market and resulted in a share price dip of 10% on the day. Net cash fell from £195 million to £125 million, although this should provide some headway in the face of the undoubted cost challenges to come this year.
Indeed, those challenges of higher costs resulting from the measures announced in the Budget come alongside weaker consumer sentiment, elevated interest rates and a relatively stagnant food-to-go market. This combination has led to a situation which has erased any progress the share price may have made over the last five years. The shares are down by 24% in the last year alone, as compared to a gain of 6% for the wider FTSE 250, 39% lower than the high reached in December 2021 and 34% below the most recent spike which was hit last September.
A projected dividend yield of 3.3%, which rises to 5.2% including specials, is something of an attraction given the price decline and optimism remains that Greggs is a company which has identified and continues to target its areas of strength. The group remains defiant and confident despite the challenges to come, and the market consensus of the shares as a cautious buy echoes some of this optimism, despite another initially glacial reaction to the update.