🥴 Asda Pays The Price for Being Nice

Market volatility continued to subside, Asda were penalised for keeping prices low, mortgager approvals jumped higher than expected and retailer Next revealed a less-than-rosy outlook.

March 30, 2023

Good morning. In today’s update - market volatility continued to subside, Asda were penalised for keeping prices low, mortgage approvals jumped higher than expected and retailer Next revealed a less-than-rosy outlook.

Markets

UK stocks breezed ahead on Wednesday as markets continued to push the recent banking trauma to the back of their minds, with the FTSE 100 and FTSE 250 rising +1.1% and +1.3% respectively. Leading the charge were housebuilders, who surged collectively on tailwinds from the mortgage approvals data (below) and a broker upgrade for Bellway Homes following its results on Tuesday.

Top Stories

🙌  Asda Penalised for Being The Good Guy

Profits at the UK’s third largest supermarket were heavily impacted in 2022 as it decided to keep prices low amid the cost of living crisis, claiming it was the “right thing to do” for customers. Adjusted EBITDA fell by around 50% to £886m, on revenue that was broadly flat for the year at £20.4bn. Separately - as if the Issa Brothers didn’t have their hands full enough with Asda, they’re now reportedly on the hunt for Subway too.

🌱 Green Shoots for UK Housing Market?

UK mortgage approvals rose for the first time in six months during February, signalling a potential pick up in demand for the housing sector. Data from the Band of England showed approvals rose to 43.5k, from 39.6k in January (and above the 42k forecast by economists). The report echoed comments from Bellway Homes CEO on Tuesday, who suggested that house buyers were gradually becoming used to higher mortgage rates. For context - approvals are still down by around a third compared to February last year (69k).

🛍️ Mixed Bag for Retailer Next PLC

Despite posting better-than-expected profits for the 2022-23 year (£870m), Next shares found themselves 4.3% lower as the company warned higher wages and energy costs would cause a drag on profits for the current year. However, on a positive for inflation - the retailer suggested it wouldn’t be increasing prices as much as first thought, owing to reduced freight and factory costs.

What Else Happened?

Economics / Politics / General

The FCA announced plans to beautify the UK stock market listing rules in an attempt to attract more big-name listings - proposals included potentially replacing the dual standard/premium listings in favour of a more streamlined approach.

Jeremy Hunt suggested to MPs that the Treasury could cough up more support for improved public sector pay deals, in a bid to settle strikes.

The Bank of England called for “urgent action” to shore up UK’s pension funds and non-bank institutions in the wake of last September’s turmoil (thanks Liz).

Deals

Ovo Energy is reportedly in the market for Shell’s domestic gas and electricity business, which supplies around 1.4m customers in the UK.

Deep Render, a London-based startup developing machine learning tools to help compress the size of videos, raised $9m to grow its team and fund expansion plans.

UK fintech Paytrix was backed by Bain Capital in an $18.3m Series A, with funds earmarked to support overseas growth.

Company News / Trading Updates

British crowdfunding site Crowdcube partnered with Octopus Investments to bring early-stage VCT funds to the masses, with minimum investments as low as £500.

Demand for UK wine fizzes as Kent-based producer Chapel Down announced a positive set of results for 2022, buoyed by sporting events.

FTSE 250 components maker Essentra handed shareholders a £150m special dividend following the disposal of its packaging business, despite taking a sizeable £183m goodwill charge on the deal.

🌎 Global Snapshot

Elon Musk was just one of a number of tech heavyweights calling for a six month “pause” to the training of new AI systems, warning of “profound risks to society and humanity”.

Electronic Arts, publisher of the Fifa game, announced plans to slash 6% of its global workforce and restructure its real estate footprint on Wednesday, amid a slowdown in demand.

Disney CEO Bob Iger swung the axe on long-time Marvel Chairman Isaac Perlmutter, gaining revenge after the latter’s role in the boardroom feud with activist investor Nelson Peltz.

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