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“A surprise pullback in the rate of inflation has given joy to investors,” says Russ Mould, Investment Director at AJ Bell.
“It strengthens the argument for the Bank of England to continue cutting interest rates and that’s fired up shares in housebuilders in the hope that mortgage rates will go down and more people will be able to afford to get onto the housing ladder. Banking shares jumped on the prospect of more demand in the mortgage market.
“The inflation reading has also helped to lower bond yields, with the 10-year gilt easing back a little to 4.841%, which will be welcomed with open arms by the under-fire chancellor, Rachel Reeves. However, the prospect of higher costs for companies this year still threatens to drive up inflation if they decide to raise prices, which means people’s living standards won’t suddenly improve because of today’s inflation reading.
“Anglo American was the top FTSE 100 faller after negative broker comment. RBC slashed its rating on the mining company to ‘underperform’. Changes to broker ratings have been having a big impact on stocks so far this year as analysts and investors reappraise the outlook for companies and how that relates to equity valuations.
“The champagne was flowing freely among investors in tiny AIM-quoted company Fiinu whose shares jumped more than 600% at one point in early trading after striking a white label deal with an unnamed UK bank. That will provide a royalty stream for the minnow and could raise its profile in the financial services sector.
“ASOS continues to reshape its business after going off the boil in recent years. A US distribution centre will be mothballed as it revamps its network for getting products from A to B. While this involves writing off a significant amount of money already spent on the facility, investors won’t be surprised given it is having to make tough decisions to get the business back on track.”
Currys
“The true sign of a turnaround story reaching its maturity is the resumption of dividends and Currys has finally reached this status. The electronics retailer last declared a dividend at its half-year results in December 2022 but then paused the payout amid Nordic struggles, inflationary pressures knocking the business for six, and a decision to exit the Greek market.
“Having taken time to find its feet, Currys has since got back on track and delivered a string of good news around like-for-like sales growth, margins and cash flow. Analysts have been upgrading earnings forecast and the shares have continued to move higher over the past 12 months.
“Currys looks vindicated in its battle to fight off takeover interest from Elliott, with its share price now double the level it was at just before the suitor came knocking on its door.
“In an environment where consumers continue to watch every penny, it’s impressive that Currys has managed to report a good festive trading period. It’s clear that electronic devices were popular choices to put under the Christmas tree in 2024. Currys has also cemented its reputation as the go-to place to get help when technology goes wrong.
“The retail sector needs a bout of positive news given the gloom around rising costs linked to Rachel Reeves’ Budget, and Currys has certainly delivered the goods.”
Loungers
“True to form, we’ve had yet another takeover situation where pressure from large investors has resulted in a better deal. Shareholders are not going to let a suitor take their company away on the cheap and so we’ve got a higher bid for café chain Loungers by Fortress following earlier pushback.
“The big question is whether the new price is enough to seal the deal. The 325p cash bid is only 4.8% higher than the previous offer, so Fortress is not exactly offering a cherry on top to sweeten the deal. It’s more like a speck of sugar.
“Fortress says it won’t go any higher and Loungers says it’s the best deal of all the ones on the table after the business was put up for sale. Loungers’ directors also predict the shares could struggle if the bid doesn’t go through.
“In essence, shareholders are being told not to be too greedy – accept what’s on offer or suffer the consequences. It’s an odd situation for a company that has fundamentally traded well as a business since its IPO, even though the shares haven’t responded as well.”
Pubs: Mitchells & Butlers / Fuller, Smith & Turner
“All Bar One owner Mitchells & Butlers and pubs operator Fuller, Smith & Turner both offered evidence that people were prioritising pints and prosecco over high street purchases in the run-up to Christmas.
“Both delivered strong like-for-like growth over the Christmas and new year period, suggesting that after a difficult time the hospitality sector might finally be staggering back to its feet.
“These businesses are reaping the rewards of investing in their respective estates – making their venues more attractive places for people to frequent. That investment looks set to continue despite the cost pressures from increased employer National Insurance contributions and an increase in the National Living Wage.
“Mitchells & Butlers did commit the cardinal sin of pinning the blame for a slower start to 2025 on the weather – something which Fuller’s notably didn’t mention – but in fairness you can see why snow and icy pavements might have put some people off heading to their local hostelry.
“The longer-term challenge posed by shifting drinking habits among younger people is still something for the sector to consider but the latest updates from Mitchells & Butlers and Fuller’s show there is still a thirst for socialising over a few drinks.”
International Distributions Services
“If this is Royal Mail owner International Distributions Services’ sign-off from the public markets, as its £3.6 billion takeover nears completion, then it could be a lot worse.
“The company saw a material boost from increased parcel volumes over the festive period. While it would be overstating things to say the Royal Mail operation is fully fixed, the return to profit promised for the current financial year is a significant milestone in its turnaround.
“It’s hard to give the company’s time on the stock market a stamp of approval. Initial excitement around its privatisation fizzled out as it struggled to modernise and boost efficiency thanks to a fractious relationship with its Royal Mail workforce.
“Ultimately, the shares are barely trading ahead of the 2013 IPO price and are well below the price they settled at on their first full day of trading. A disappointing outcome for anyone who got in at the start.”
Frontier Developments
“Games developer Frontier Developments had previously crashed harder than an overheated ZX Spectrum, so it didn’t take a lot for the shares to power up again on some good news.
“After a series of disappointments and delays to key titles, the market was clearly sceptical about the company’s ability to deliver. The swing to profit and improved cash position has therefore been welcomed enthusiastically.
“The lack of new games planned for the second half of its financial period means investors may need to prepare themselves for a more fallow period to come.”
These articles are for information purposes only and are not a personal recommendation or advice.
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