FTSE Friday: Retailers, House Builders And Broadcasters In The Eye Of The Economic Storm

11th Nov '22 by Megan Boxall

10 comments 2728 reads

The UK economy contracted by 0.2% in the three months to September - finally putting a figure on the decline that we’ve all been expecting. And with a downhill slide expected in the final quarter of 2022, economists can now say with confidence that the UK will be in an official recession by the end of the year.

This economic woes are trickling through the announcements of many of the countries biggest businesses. This week we’ll be running through the announcements from:

Consumer facing companies at different ends of the spending spectrum
ITV - a British broadcaster making the right decisions
House builders confirming property price fears

Meanwhile, business news this week has been dominated by Elon Musk’s increasingly unhinged behaviour at Twitter and the collapse of Sam Bankman-Fried’s $32bn FTX crypto currency empire.

Headlines like these are adding to the sense of panic in the global markets, but this week we have also seen some sizeable rallies as the interest rate optimism emerges. Still, a shift in the market cycle is not a time for rash decisions. Now, more than ever, is the time for sturdy, well managed, (boring?), businesses. Investors should wait patiently for opportunities.

Economic woes are biting businesses: M&S and Wetherspoons

Marks & Spencer (LON: MKS) and Wetherspoons (LON: JDW) have different clientele, but they’re subject to the same afflictions of economic downturn:

Inflation boosted prices have caused costs to rise, putting pressure on operating margins.
The rising cost of living has squeezed demand, meaning sales growth is stalling.
Base rate hikes have lifted the interest paid on company debt, sending finance costs higher.

Marks & Spencer reported a 24% decline in operating profits in the first six months of the year and a free cash outflow owing to supply chain disruptions in the clothing business. Wetherspoons has seen a decline in sales compared to 2019 in the last five weeks and is expecting £10m of extra finance costs in 2023 owing to new terms on its debt. These are trends we should expect to see peppering British companies financial announcements in the coming months.

The downturn is likely to accelerate the demise of some companies. Those with expensive store estates, a hefty debt burden or wafer thin margins are the most likely to be in the danger zone. Marks & Spencer and Wetherspoons both fall into that camp. The former has more than 100 stores that it wants to…

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Norfolk'n'Good

11th Nov '22

Hi Megan

Economic forecasting not easy for anyone...but here goes!!

As you will be aware, a recession is (officially at least) 2 consecutive quarters of GDP shrinkage. So if we are calling a GDP 'shrinkage' of 0.2% a recession then we are in Tabloid territory! Especially as, unless I am mistaken, the December quarter has barely started....

Let's at least give UK PLC the benefit of the doubt until official figures are out?

Metatron

Few personal views:Marks &Spencer is still my preference major store for buying food.Wetherspoon has a very loyal customer base.ITV 's dramas and adverts are full of woke scenes that lack credibility and irritate.As are their rivals.I predict that soon there will be political groups who accuse TV executives of trying brainwash children and as such being guilty of child abuse.Sky TV last year were boasting about they were going to use subliminal messaging at children in order to get them to believe in the 'climate emergency'

Aargh Aitch

I'd be interested to see how subscribers view ITV's plans compared to STV's. STV (LON:STVG) ITV seems to be planning the kind of strategy that STV already has, I'd have expected ITV as the bigger player to be more ahead than they appear to be.

Dave787

The governor of the bank of England called a recession 3 months ago, within a couple of weeks the figures were revised up such that we weren't actually in a recession, despite all his best endeavors to talk the economy down. I'm just waiting for these latest figures to be revised upwards, to demonstrate yet again we currently have the worst governor that I can ever remember. He has two remits first to keep inflation c 2% and secondly to assist in the growth of the economy, failed on both accounts, if anyone else had done such a bad job they would no longer be in position.

Nanotrader09

12th Nov '22

great article, thanks Megan

catalogue

Hi Megan, a very interesting article. Over the years I have made good profits on both Wimpey and ITV post down turn. I have never made money from M&S although your comments make interesting reading. Greene King, pub owner and brewer was a serious multi bagger for the patient, but that is not open to investors and in Far East hands. Wetherspoon's is a recent pub phenomenon and has an unattractive risk rating, but who knows?

Lucky dip

I follow the housebuilders and the housing market closely.

I suspect that the house prices will moderate and most likely we will see a drop of near 20% in real term over the next two or three years. This has to be welcomed. A large number of young buyers are watching this with glee.

Demand has not disappeared, affordability has.

The housebuilders and the market have been expecting this for nearly two years and it has arrived.

Share prices are down more than 60% .

Whether they drop more than this is beyond my expertise but they will survive.

Dividend maybe cut, they build fewer houses and as the transactions collapse they remain the main sellers in the market.

I restart buying at this levels and looking beyond 2023 I think the property market start breathing again. it’s unlikely we will see the crazy price spikes of the last twenty years but one hopes they will keep rising at the rate of inflation .

Albertos

I don't know whether FTSE Friday is meant to be an on-going thing, but I really like it.

Picking through some of the highlights of the weeks events and putting a bit of a commentary on it is something which gives a base line on, currently, very volatile weeks.

Very useful.

Phil

WarrantStar

13th Nov '22

Megan. You say "The M&S app now accounts for almost a third of purchases made at the company,". By this do you mean one third of purchases are made on smart phones, or one third of purchases are sold over the internet (including smart phones, laptops, PCs )?

Zipmanpeter

Megan - A "FTSE Friday column" on 2-3 midsize Uk companies (ie the next block up from SCVR) would be an excellent regular thing. I liked the above was an analysis of the market through the prism of a bit of detail on specific companies. At a few companies/wk there should always be material.

FTSE Friday: Retailers, house builders and broadcasters in the eye of the economic storm

Economic woes are biting businesses: M&S and Wetherspoons

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Megan Boxall

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