Equities Update: Kingfisher, Compass, Halfords, Analog Devices, Matthey…

The budget deals a hammer blow to Kingfisher

Mark Crouch, market analyst at investment platform eToro says: “After what was a strong first half of the year for Kingfisher, the DIY retailer’s latest trading update looks much more shaky, as the impact of Rachel Reeves’ recent budget may have dealt a significant hammer blow for the B&Q owner.

“The rise in National Insurance costs has put pressure on Kingfisher’s profit outlook, shaving off the upper end of its projected earnings, and as consumers and businesses adjust to the latest Labour budget measures, this financial strain is becoming increasingly apparent.

“Despite these challenges, Screwfix held up relatively well helping to offset some of the broader difficulties, posting modest sales growth. However, Kingfisher’s performance in France remains a concern, with sales continuing to fall. What first might have felt like a splinter at the start of the year for Kingfisher could develop into something worse if the current trends there don’t reverse.

“With customer confidence playing a central role to Kingfisher’s business, it’s clear smaller trade businesses have been rattled by the budget. Therefore, investors will be hoping that the negative reaction is short-lived and optimism will spring back once the dust has settled.”

Compass coffers benefit from canteen comeback

Adam Vettese, market analyst at investment platform eToro, says: “Hybrid or remote workers being asked to come back to the office is clearly a hot topic at the moment with many not wanting to relinquish their flexibility. Compass Group however is a beneficiary of this movement – as the world’s largest caterer they operate many workplace canteens and welcome the volume back through the doors.

“The firm performed slightly better than analysts’ estimates after a 16% jump in profit, meanwhile continuing to make acquisitions and exit non-core markets to drive efficiency. Compass has also however tried to manage expectations going forward with the profit outlook lower than forecast, perhaps simply getting ahead of the narrative due to the high bar set.

“The shares have dipped this morning but still sit at almost 20% up for the year and might well represent a buying opportunity if they are to continue their longer-term trajectory.”

Halfords signals challenges ahead, but motoring services offer hope

Mark Crouch, market analyst at investment platform eToro, says: “Halfords shareholders may be feeling deflated these days. The post-lockdown cycling surge is now a distant memory, and the latest trading update confirms that both revenues and profits continue to slide. To add insult to injury, Labour’s latest budget has added an additional £23m in direct labour costs – something the motoring and cycling services retailer could certainly do without.

“Poor summer weather certainly hasn’t helped matters, however there is only so much of Halfords’ poor performance can be blamed on the weather. Penny pinching consumers have been reluctant to splurge on bicycles and camping equipment for some time, and after last month’s budget did little to unlock economic activity, it seems unlikely that trend is set to change.

“Motoring is a sector that Halfords had hoped would drive performance into positive territory, and right now there is excitement surrounding Halfords’ Fusion Motoring Services programme, which is already delivering promising returns. However, it’s so far unclear as to whether this can spark a turnaround in Halfords share price. That said there is a real belief that it has the potential to steer Halfords out of their current slump.”

Analog Devices beats expectations, as bookings rebound

Adam Vettese, market analyst at investment platform eToro says: “Chipmaker Analog Devices reported for its fiscal fourth quarter before the US stock market open and its results are tentatively positive. While sales and earnings compare unfavourably to the same quarter a year ago, they were slightly ahead of expectations and, furthermore, the company has done a good job in keeping costs down. As CEO and Chair Vincent Roche pointed out, while ‘unprecedented customer inventory headwinds drove a historic revenue decline’ in 2024, the company has managed to keep operating margins above 40%, on an adjusted basis.

“Roche has been promising a normalisation of bookings growth for some time, and the evidence here does appear to be consistent with that: bookings weakened in its fiscal third quarter, but have headed higher in the fourth, offering hopes of a turnaround despite recent wobbles in the US economy. This should come with a note of caution: Analog’s broad portfolio of chips makes it a difficult company to easily make a simple case for growth, with its revenue drivers of industrial, automotive, consumer and communications subject to mostly differing factors at any one time. Demand growth at the industrial level, judging by recent US manufacturing PMI readings, does not show any clear indications of improvement and though the latest consumer confidence indication was strong, this could very well end up dented by significant disruption to the US labour market following the devastating hurricane season this Autumn.

“Overall it’s a somewhat optimistic set of results: the forward guidance from management is reasonably robust, dividend payments have been higher in 2024 than in 2023, and the market has responded favourably, with shares in Analog Devices climbing more than 5% in pre-market trading.”
 

Matthey shares slide amid tough market conditions

Adam Vettese, market analyst at investment platform eToro, says: “As we approach the end of the year there isn’t much festive cheer for Johnson Matthey shareholders this morning as the latest update as seen shares slip even further this year. The chemical and precious metal processor has seen profit dip due to tough market conditions and FX headwinds.

“Matthey has maintained their guidance and said that performance will be more weighted to the second half, and on a positive note the cash position has improved and debt seems to be getting under control.

“The firm is in the midst of a transformation whereby they are trying to divest underperforming units and improve cost savings overall, which in fairness does not happen overnight. This will hardly placate shareholders though, given shares have declined by a quarter from this year’s peak and are worth less than half of what they were in 2022.”