Top UK Stocks to Watch BME shares fall as growth slows

Josh Warner
By :  ,  Former Market Analyst

Top UK Stocks and Shares | B&M Share Price | Deliveroo Share Price | WH Smith Share Price | Airline Stocks

Top News: B&M sales continue to grow above pre-pandemic levels

Discount retailer B&M European Retail Value continued to deliver growth in the first quarter, but warned it has slowed considerably as it starts to come up against strong comparatives from last year when B&M saw a surge in demand as one of the few retailers able to stay open during lockdown.

Revenue grew 3.1% year-on-year in the first quarter covering the 13 weeks to June 26. That represents a marked slowdown compared to previous quarters. Still, that is impressive considering revenue was up over 27% in the first quarter last year.

‘The group has made a strong start to the new financial year and sales remain significantly above pre-pandemic levels.  As expected, trading throughout the first quarter was volatile as we annualised against the high comparatives from last year,’ said chief executive Simon Arora.

Like-for-like sales at its core B&M brand actually fell 4.4% from the year before as a result – although they remained some 21% higher than pre-pandemic levels. B&M said it is too early to predict what the rest of the year has in store, but said it expects like-for-likes to remain well above pre-pandemic levels in the UK.

In France, revenue was up 26.9% in the period, with both the quarter this year and last year impacted by lockdowns.

‘Although there remains much uncertainty as to how consumer spending evolves over the coming months, we remain optimistic that our combination of exceptional value across a wide range of product categories and our convenient Out of Town locations will continue to resonate with customers,’ Arora added.

B&M said it opened seven new B&M stores in the quarter and closed four as it continues to expand its estate.

Where next for the B&M share price?

The B&M share price has been trending higher since July last year. The price hit resistance at 612p mid-February before forming a series of lower highs forming a symmetrical triangle pattern. 

The price traded in the middle of the triangle and is testing its 50 sma. The RSI is also neutral at 50, although points lower. The price could continue to consolidate within the triangle pattern before breaking out either to the upside or downside. 

Buyers could be looking for a move above 575p the descending trendline resistance. Whilst sellers could look for a break below the 50 & 100 sma at 555p and a move below 533p for a deeper selloff. 

Deliveroo lowers margin target as it raises investment  

Food delivery firm Deliveroo said the stellar levels of growth seen this year has prompted it to raise expectations for the rest of 2021, but warned increased investment could weigh on margins in the short-term.

The company said it took 78 million orders in the second quarter to the end of June, up 88% from the year before. That was comprised of a 94% jump to 38 million orders in the UK and Ireland and an 83% rise in international orders to 40 million.

Total gross transaction value grew 76% year-on-year in the quarter to £1.73 billion, driven by 87% growth in the UK and Ireland to £921 million and a 65% rise in international GTV to £818 million.

‘Deliveroo has seen continued strong growth and consumer engagement in H1, and as a result of that plus increased expectations for H2 is increasing the guidance for full year annual GTV growth from between 30% to 40% to between 50% to 60%,’ Deliveroo said.

The news sent Deliveroo shares up 4.8% in early trade this morning to a new record high of 335.05p.

The performance means GTV doubled during the first half of 2021 to £3.38 billion. However, Deliveroo expects GTV to be lower in the second half than the first and rates of growth will slow considerably as it starts to come up against tougher comparatives.

Deliveroo is expecting GTV to grow by anywhere between 15% to 32% year-on-year in the second half to a range of £2.72 billion to £3.13 billion.

Plus, Deliveroo warned that it plans to increase investment to capitalise on further opportunities in the second half, which means its gross profit margin as a percentage of GTV will be lower than previously expected. Deliveroo was previously aiming to deliver a margin of around 7.5% to 8.0% of GTV this year.

Deliveroo plans to release interim results on August 11.

Jet2 says winter bookings slow due to travel ‘speculation’

Jet2 said it is encouraged as governments slowly try to get international travel back up and running again, but warned it is unclear whether new, relaxed rules for fully-vaccinated travellers will be enough to save the summer holidays.  

The airline said it booked a loss before tax and foreign exchange revaluation of £373.8 million in the year to the end of March from a £264.2 million profit the year before. That was slightly better than the company’s guidance.  The loss at the bottom-line came in at £341.3 million compared to a £153.2 million profit.

Jet2 was pushed into the red as revenue slumped 89% in the year to just £395.4 million from £3.58 billion the year before.

Jet2 said its fleet was fully grounded for 29 weeks of the financial year and had to operate a reduced schedule when it was allowed to fly. This prompted Jet2 to focus on the most profitable routes.

The company said it believes it is well-positioned to recover as international travel starts to open up again, and that it has more than enough liquidity to survive in the meantime.

‘We believe opportunities for financially strong, resilient and trusted operators will only increase. Bookings for Summer 22, for which package holiday bookings are displaying a materially higher mix of the total are encouraging and with the vaccination progress being made, we are optimistic that Summer 22 will be a considerable improvement on both Summer 20 and Summer 21,’ Jet2 said.

There has been ‘little change’ to the depressed level of demand in the UK and Europe during the first quarter of its new financial year, but Jet2 and the wider industry is growing confident now that new rules are set to be introduced for fully-vaccinated travellers.

‘That said, group performance for the financial year ending 31 March 2022 is very much dependent on the level of flying permitted for the remainder of Summer 21 and performance in the second half of the financial year, periods for which we still have limited visibility. Unsurprisingly given the continuing short-term uncertainty, customers are booking significantly closer to departure for Summer 21; and, although bookings to date for Winter 21/22 are satisfactory, they have slowed more recently given the ongoing speculation around international travel,’ Jet2 warned.

Jet2 shares were trading 0.7% lower in early trade this morning at 1227.5p.

Airline stocks in play ahead of UK update to travel rules

Jet2’s update comes on the same day that the UK is expected to announce plan to ease travel rules for fully-vaccinated travellers from as early as July 19, when the country is set to ease the last of lockdown restrictions.

This is expected to open up Europe’s top hotspots such as France, Spain, Portugal and Italy and unleash pent-up demand for the airline industry.

Media reports suggest those that have had both jabs of their vaccine will not need to quarantine when returning from amber list countries, although they are anticipated having to conduct tests so the government can track any new variants that emerge.

Notably, other countries on the amber list include the likes of the US, Mexico and Thailand. However, it is important to remember that other countries have their own rules that will still apply. For example, Italy is still requiring travellers to quarantine for five days upon arrival.

Although far from a return to normal for the airline industry, the news will be welcome today. Many airlines from easyJet to Ryanair have criticised the approach taken to international travel and have been urging governments to get the industry back on its feet after the toughest 18 months in its history. Still, it is unclear whether it will be enough to save this summer.

Airline stocks were trading lower this morning. British Airways-owner IAG was trading down 1.7%, easyJet was down 1.1%, Ryanair was also down 1.1%, and Wizz Air was trading 0.8% lower.  

WH Smith encouraged by improving trends and plans to open new stores

WH Smith said it is encouraged by the improving trends in its business as both its travel and high street stores continue to suffer during the pandemic, as it unveiled plans to open 18 new InMotion stores as it positions itself to recover after a tough 18 months.

WH Smith stores rely on traffic and have struggled during the pandemic. High street stores have lost sales as people work from home while its stores in train stations and airports have suffered even more as travel has been limited.  

The company said sales in the 18 weeks to July 3 were equal to just 62% of pre-pandemic levels. High street sales have recovered to 86% of pre-pandemic sales while travel continues to struggle at just 48%.

‘While both our travel and high street businesses continue to be impacted by the current trading environment, we are encouraged by the improving trends,’ said WH Smith.

Its high street business is steadily recovering but suffering from lower levels of footfall. It said its online brands like had continued to perform well.

WH Smith admits the outlook for its travel division remains tough, but it is taking advantage by opening new stores and sites so it can capitalise further once people start travelling in large numbers again. It said it plans to continue opening new sites in airports and hospitals going forward.

The company also announced it is opening 18 new InMotion stores to sell tech and travel accessories across major UK airports, including Heathrow, Stansted, Manchester and London Luton. It reckons the new stores could contribute £60 million in annual sales once travel fully recovers and said it will need to invest around £15 million to get them up and running.

That is in addition to the 100 travel stores already in its pipeline, of which 16 are now open.

The expansion of the InMotion brand, which has its roots in North America, is significant as sales have recovered faster over there. WH Smith said its North American business was trading ahead of expectations.

‘Following the stronger than anticipated performance from our North America business, we anticipate a small improvement to management's expectations for the current financial year,’ said WH Smith.

WH Smith shares were down 0.3% in early trade this morning at 1649.3p.

Fuller, Smith & Turner cheers the lifting of restrictions this month

Fuller, Smith & Turner saw sales plunge and was pushed into the red during its recently-ended financial year as lockdown forced pubs to close for much of the period, but said things have improved since it reopened its sites and is looking forward to operating without restrictions later this month.

The pub chain said its estate was shut for over 70% of the year to March 27. This caused revenue to plunge to £73.4 million from £319.7 million the year before and caused the company to swing to pretax loss of £59.2 million from a £166.2 million profit.

Unsurprisingly, the company said it is not paying a dividend for the year and is waiting for things to improve before reinstating payouts.

Fuller, Smith & Turner, which benefits from its large freehold estate, said all of its pubs are now open. Like-for-like sales at its managed pubs in the 12 weeks to July 3 were down around 24% from pre-pandemic levels, partly because of ongoing restrictions like social distancing.

The company said it was ‘looking forward to trading fully with no restrictions from July 19’.

‘The end of restrictions is now just 11 days away and our pubs and hotels are perfectly placed to benefit from growing consumer confidence and the return of normal life,’ said chief executive Simon Emeny.

Fuller, Smith & Turner said it expects to perform well when restrictions, and noted that strong cash generation since reopening pubs means net debt is now back at pre-pandemic levels.

‘We have a clear set of priorities for the next 12 months. We will continue to deliver our strategic goals, invest in our estate, and implement our new central finance system. Other projects, such as our employer brand and further work around our digital customer journey, will be progressed and we will, as ever, keep a watching brief on appropriate opportunities in the market. In the short term, we will continue to address challenges around recruitment and supply chain, which are having an impact right across the hospitality sector,’ said Emeny.

Fuller, Smith & Turner shares were trading 1.1% higher in early trade this morning at 869.0p.

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