Proactive Investors -
- FTSE up 32 points at 7,529
- Wage growth remains inflated, food price inflation eases
- Smurfit Kappa (LON:SKG) tumbles after confirming WestRock merger
Primark owner, AB Foods (LON:ABF), takes off after trading update
Shares in Primark owner, AB Foods, have accelerated on further consideration of today’s trading.
Interestingly, the pick-up has been noticeable in the last hour with City scribes speaking to the company at 9:00am.
Ahead of that meeting, UBS said is expected a modestly positive reaction to today’s news.
“Should the call point to further upside to consensus EBIT for FY24e, it could turn more positive,” the broker said.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) said; “Not all retailers are made equal.”
“The group’s savvy model means that starting with bargain prices allows more room to pump up price tags before putting consumers off in this very tough economic climate,” she said.
Emma-Lou Montgomery, associate director for personal investing at Fidelity International highlighted good progress in the US.
“In the US, the Primark brand is making great strides too.”
“The weakening of the US dollar against sterling and the euro, as well as lower freight costs, which have improved in recent weeks, mean it expects adjusted operating profit margins to recover strongly in the next financial year.”
“Then there’s the news, expected later today from New York, of a new international fashion collaboration,” she added.
“The icing on the cake is the Foods division, which thanks to Twinings, Ovaltine, Blue Dragon and Patak's performing particularly well with US consumers, will see a “substantial” improvement in profitability in the next financial year,” she added.
AJ Bell’s Russ Mould said: “While there have been some hiccups along the way, such as unfavourable weather conditions in several geographic territories which has hurt footfall to its shops, the outlook for Primark continues to be favourable.”
Metro Bank slips as capital relief delayed
Metro Bank is also having a bad day, down about 6%.
That’s after the UK regulator told the lender its application for accreditation on the residential mortgage side needs more work, and the bank won’t receive approval in 2023.
“The [Prudential Regulation Authority] has indicated that at this stage more work is required by the company which means approval will not be attained during 2023,” the bank in a statement on Tuesday.
Metro has spent five years pursing its bid to use internal models, which allow banks to rely on their own history rather than standardised approaches to calculate the riskiness of loans.
The so called AIRB approval is important for Metro Bank because it would allow it to be more flexible in its product offering, free up capital and loosen constraints in how it puts deposits to work.
Currently, Metro Bank can only to deploy them into zero-risk or low-risk weighted ways, which caps its profits.
UK wage numbers "more dovish" than they look
The UK wage numbers are more dovish than they look at first glance, according to ING Economics.
At headline level, regular pay growth stayed at 7.8% on a three month annual basis, "no surprises there," ING said.
"But drill down and if you strip out the public sector, private sector pay barely increased in level terms between June and July. And if we look at the alternative wage data which is based on payroll figures (or PAYE), that actually fell in level terms for the second consecutive month," it pointed out.
One month doesn’t make a trend and the latest private-sector regular pay figure, which is the bit the Bank of England is focused on, was preceded by several upside surprises over recent months, ING noted.
But it comes alongside various signals that the labour market is cooling more noticeably, ING added.
The ratio of unfilled job openings to the number of unemployed workers, a ratio that BoE Governor Bailey has consistently referenced, is falling quickly now, ING pointed out.
"The bottom line is that with the jobs market cooling and wage growth, for now at least, not coming in as hot, the labour market data does not scream a need for the Bank to keep hiking rates much further," it added.
FTSE 100 holds steady with rate rise "nailed on"
The FTSE 100 has pushed ahead despite the strong wage growth figures, which have increased the likelihood of an interest rate increase when the Bank of England next meets.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: “’Caution is in the air today as investors assess stubborn wage growth in the UK and wait for other key data, which may help determine the direction of interest rates, as speculation swirls over how far hiking cycles have left to go.”
“Wage growth is still hot in Britain and the temperature isn’t coming down much, providing little relief for Bank of England policymakers who need more evidence that employers are showing restraint before they’ll feel confident about pressing pause on interest rate hikes.”
“Annual growth in regular pay remains at the scorching level of 7.8% so another rate rises this month looks nailed on.”
Martin Beck, chief economic advisor to the EY ITEM Club, said: “Whether a loosening in the jobs market will press down on pay growth sufficiently and quickly is a key question facing the MPC.”
“The latest data offered few signs that is happening,” he added.
The big loser in the lead index remains Smurfit Kappa after the terms of its merger with WestRock were confirmed.
Shareholders of Atlanta, Georgia-based WestRock will receive the equivalent of $43.51 a share in cash and stock, a 28% premium to WestRock’s Monday close.
The City clearly thinks Smurfit has got the wrong end of this deal.
Food price inflation at 12-month low but remains in double digits
Grocery price inflation has dropped to its lowest level in over 12 months but it’s no cause for celebration, according to Kantar.
The research firm said food price inflation cooled to 12.2% in the four weeks to 3 September, the sixth monthly fall in a row.
Take-home sales from the grocers rose by 7.4% compared with the same period in 2022, a slight increase on the 6.5% growth reported last month.
Fraser McKevitt, head of retail and consumer insight at Kantar said the figures will not be “a number to celebrate for many households.”
“Our data shows that 95% of consumers are still worried about the impact of rising grocery prices, matched only by their concern about energy bills,” he added.
Discount retailers continue to benefit from the inflationary context with knock-on effects for British shopping habits more generally, the report showed.
This month, Aldi grew sales by 17.1% and Lidl by 16.0%. Between them, the discounters now capture 17.7% of the sector, Kantar reported.
Sainsbury’s and Tesco (LON:TSCO) were the fastest growing traditional retailers this month, growing sales by 9.1% and 9.3% respectively.
Tesco’s share now stands at 27.2%, up by 0.3 percentage points from last year, and Sainsbury’s at 14.8%, up by 0.2 percentage points.
Asda’s market share is at 13.8% and Morrisons’ 8.6%, with sales up by 5.1% and 2.0% respectively.
Waitrose’s growth accelerated to 5.6% this month, meaning that the retailer now holds 4.6% of the market.
Ocado (LON:OCDO) also saw sales increasing faster than last month, with growth now at 4.3% and market share at 1.6%.
Co-op's sales were up by 2.5% versus a year ago with the convenience retailer now holding a 6.1% market share. Iceland’s sales rose by 4.3% to take a share of 2.3%.