High St worries weigh on returns from FTSE 100
THE FTSE 100 suffered its worst day of trading in two weeks as it was weighed down by a gloomy outlook for the High Street, combined with results from retailers that did little to allay investor concerns about the sector.
Figures published by the British Retail Consortium earlier this week showed the High Street experienced its worst October for sales in a decade.
‘The leading data suggests to us that demand will be weaker over the next six to 12 months,’ said Edward Park, investment director at Brooks Macdonald.
‘We have already seen this in Q3 earnings for domestically focused companies and CEO guidance for future quarters has been less optimistic,’ he said. Marks & Spencer shares continued their decline, yesterday falling another 1.9pc, or 6p, to 319.2p, following results on Wednesday that revealed its profits fell 5.3pc in the six months to the end of September, causing the company’s finance director to step down.
Burberry was also down for the second day in a row as brokers cut their price target. The firm’s share price was battered earlier this week after it revealed plans to refocus its business on the luxury market. It closed 2.3pc, or 41p lower, at 1746p.
Sainsbury’s, however, bucked the trend for retailer share prices, picking up by 1.3pc, a rise of 3p, to 232.2p. Profits at the supermarket dived by 9pc in the first half of 2017, this week’s results showed.
The sector’s overall poor outlook, combined with sterling’s improving rate against the dollar over the course of Friday, pushed the FTSE 100 down 0.7pc, or 51.11 points, to 7432.99. Ultra Electronics sunk to end the day as the worst performer on the FTSE as it awaited a decision from the US Department of Justice on its $234m purchase of Sparton Corp, which makes anti-submarine warfare devices used by the US Navy.
Shares in the UK defence company plunged by 11pc, or 190p, to 1527p. The DoJ has asked Ultra Electronics for more information on its planned purchase of Sparton, with a decision from the department expected at the end of March 2018.
Liberum analysts warned of further delays to the decision, but maintained its ‘Buy’ rating on the stock, while Berenberg lowered its rating to a ‘Sell’ from ‘Hold’.
Analysts at the bank pointed to ‘persistent organic decline as a concern’, particularly during the current US defence growth cycle, adding it was unconvinced that Ultra was on the cusp of a growth turning point this year.
Shares in Halfords were on the road to recovery following a severe drop after results revealed its sales had been hit by the falling pound. Thanks to analyst upgrades on Friday that saw Deutsche Bank raise its rating from ‘Sell’ to ‘Hold’, and Stifel from ‘Buy’ to ‘Hold’, the bikes and car parts retailer ended the day 7.1pc higher, or 22p up, at 332.8p.
Retail distributor Bunzl was the second worst-performing stock on Friday, after a warning that its market price did not indicate the potential disruption it faced from Amazon Business, the firm’s B2B distribution venture.
A note issued by Morgan Stanley said: ‘ Amazon’s intention to target B2B distribution has resulted in a significant de-rating for Rexel, while Bunzl has been unaffected. However, the Bunzl offer appears more vulnerable to us.’
The warning sent shares in the company spiralling to end the day on 2157p, a fall of 6.5pc, or 151p.
Pendragon was unchanged at 24p after it was hit by a cut to its price target by broker Jefferies, which slashed its recommendation by almost half from 55p to 25p. Analysts said the profit warning issued by the firm earlier this week had taken them ‘by surprise’.