City round-up

More ‘market bluster’ from Martin + other updates

Tim Martin

J D Wetherspoon

Ed Monk, Fidelity Personal Investing’s share dealing service, said: “There was more Brexit bluster from J D Wetherspoon chairman Tim Martin [pictured] in the company’s trading update today, but investors will be more focussed on the warning that pre-tax profit will be lower in the first half of the trading year.

“In a full-throated call for ‘No Deal’, in which the UK doesn’t even pay its £39bn divorce settlement, Mr Martin said the UK could scrap tariffs on a range of goods – including children’s clothing from Cambodia – giving a boost to consumers here. 

“Full-year forecasts for Wetherspoon’s remained unchanged and a like-for-like sale increase of 7.2% was good news, and an improvement since the last update in November. The margins at ‘Spoons are tight so the challenge has been to grow overall sales in order to keep growing profits.

“Any hint of higher costs, including staff wages, is bad news so the news of another £30m in labour costs since November will hurt. With unemployment low, thanks in part to lower flows of workers from the EU, labour costs will continue to be a focus at Wetherspoon’s.”

Summary: For the first 12 weeks of the second quarter to 20 January, like-for-like sales increased by 7.2% and total sales by 8.3%. In the year to date (25 weeks to 20 January), like-for-like sales increased by 6.3% and total sales by 7.2%.

Profit before tax in the first half is expected to be lower than the same period last year. Expectations for the full year are unchanged.

WH Smith

Ed Monk, Fidelity Personal Investing’s share dealing service, said:“WH Smith’s trading update confirms its continuing transformation from High Street jack-of-all-trades to travel specialist focussed on airports and train stations. Travel sales were another 8% higher, excluding the boost from the November purchase of US digital accessories chain In-Motion, matching the pace of three months ago.

“Meanwhile the High Street business continues to shrink with total sales down 1%, although the company’s cost-saving programme remains on track.”

Summary: The group delivered a strong trading performance in the period with total sales up 6% (up 3% excluding InMotion) and like-for-like sales flat for the 20 weeks.

“Looking ahead, whilst there is existing uncertainty in the broader economic environment, the Group is well positioned for the year ahead and beyond.”  

Metro Bank Metro Bank

Shares in Metro Bank fell by nearly a quarter after it released its full year results for 2018. The lender reported a jump in underlying pretax profit for 2018, but said growth softened as the final quarter progressed.

It said it had seen a softening of mortgage margins, which continue to be under pressure. It also said it had seen a change in customer behaviour during the fourth quarter.

In early trade in London its shares slumped by 24% to 1668p.

Russ Mould, AJ Bell, said: “A profit miss from Metro Bank has put a large dent in its share price and left the market wondering what’s gone wrong with the once-shining star in the banking sector.

“Full year pre-tax profit guidance of £50 million is 15% below the consensus forecast among analysts of £59 million. The fourth quarter saw a big drop in profit and the market will want a full explanation of what’s happened when the next set of results are published on 27 February.

“Metro Bank seems to have no problem attracting new customers, helped by its branches having prime locations on the high street and being open seven days a week. However, banking remains a highly competitive industry and this issue is certainly going to be a key reason behind the profit warning.

“Intense competition in the mortgage market is a major issue at the moment and has been flagged by other lenders. Savings rates are also going up across the industry as the Bank of England has started to slowly lift base rates.

“This has created a perfect storm for some banks and is likely to have put pressure on Metro Bank’s net interest margin, which compares the money paid on savings to the interest customers pay on loans.

“Its trading update also reveals is a sharp jump in its risk-weighted assets, partially down to an adjustment in the weighting given to some of its commercial property and other specialist buy-to-let loans. That means its total capital ratio will have fallen, much to the market’s dismay.

“Banks have to ensure their own funds as a proportion of risk-weighted assets (money owned by other people, allowing for non-payment risk) exceed a set regulatory target.

“Analysts last year expressed concerns about Metro Bank potentially falling below its minimum capital targets unless it raised more money. It subsequently raised £300 million in the summer to boost its capital reserves.”

Summary: Underlying profit before tax of £50m for 2018 grew by 138% vs 2017, but softened as the last quarter progressed. Management intends to give an update on outlook at the full year results on 27 February


Russ Mould, AJ Bell, said: “Luxury goods firm Burberry may have reported a sales drop with its third quarter trading update, but investors will still be slightly relieved that sales from China, despite all the recent negative headlines about the country’ economy, held up reasonably well.

“China has been a key driver of the company’s growth in recent years and sentiment towards the stock had been affected by the slowdown in the world’s second largest economy. In fact, it was the Americas which failed to fire for Burberry thanks to weaker footfall.

“The business maintained its full year guidance and confirmed the release of the debut collection of new chief creative officer Riccardo Tisci to stores in February after a well-received showcase at London Fashion week last autumn.

“The company’s plan is to go even more upmarket with its brand, pushing its exclusivity in order to catch up with faster growing rivals in the luxury space.

“This seems a sensible approach although it may take time to gain traction and deliver material growth – something chief executive Marco Gobbetti has been open about. For the time being, investors will have to remain patient.”

Summary: Strong Festive campaign with social conversation reaching c57 million consumers. Comparable store sales  up 1% with a consistent performance across regions.

Marco Gobbetti, Chief Executive, said: “I am pleased with our progress in the quarter as we continued to build brand heat around our new creative vision and shift consumer perception of Burberry. Excitement is growing ahead of next month’s launch of Riccardo’s debut collection. We will continue to manage the business dynamically as we reposition the brand. We confirm our outlook for the full year.”

Brewin Dolphin

Summary: For the quarter ended 31 December –  total income was £77.7m (Q1 2018: £79.0m), a decrease of 1.6%. Total funds reduced by 7.7% to £39.5bn (FY 2018: £42.8bn) and discretionary funds reduced by 7.2% to £34.9bn (FY 2018: £37.6bn) driven by lower market levels.

David Nicol, Chief Executive, said: The first quarter has been characterised by lower market levels and ongoing macro-economic uncertainty.

“Against this backdrop, net discretionary inflows have remained strong and ahead of our 5% target, albeit intermediary client activity has slowed whilst intermediaries and their clients assess the current environment.

“Challenging market conditions reinforce the value Brewin Dolphin offers clients and we remain confident in our business model, strategy and long-term growth prospects. We will continue to invest selectively to build the business and retain a disciplined focus on operating expenses.


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