- Global stocks fall amid Federal Reserve caution.
- Dr Martens results worse than expected.
- Auto Trader shares up 10% on full year results.
- Oil price dips on demand concerns.
- Salesforce feels wrath of the market.
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown:
“The UK’s blue chips have continued their decline, following a negative trading session in the US yesterday. There continues to be movement in treasury yields, which is affecting sentiment. Treasury yields have risen to four-week highs, following relatively cautious comments from the Federal Reserve about the interest rate cutting cycle, which has dented market confidence. The reality is there’s no immediate catalyst for the UK market to perk up and it will remain firmly in the hands of improved macroeconomic news. Rishi Sunak’s promise to deliver interest rate cuts if he wins the upcoming election won’t be a potent enough prospect to lift the mood just yet.
Despite concerns that Dr Martens investors would put the boot in, the shares have risen following weak full year results. Pre-tax profits have fallen almost 43% in the year, as disappointing consumer demand in the US has weighed heavily on performance. Management has promised a hefty cost-saving plan to try and lace margins back together, but being forced to trim fat under duress is not where any company wants to be. There have long been question marks over Dr Martens expansion execution and these figures won’t help allay these fears. The group has a strong heritage brand, but sits in a very tricky part of the fashion market in the current environment. The positive share price reaction is likely more to do with relief that management’s grasping the nettle than it is to do with concrete optimism.
It’s better news for Auto Trader, whose revenue shot up 14% in the last financial year, and the shares have been given a boost in response. Despite softening car prices, overall, the car market has been strong for the group, and crucially, its operating margins continue to sit in the 70% range. This is a cornerstone of the investment case, as is Auto Trader’s market dominance. Newer entrants to the market, as Cazoo has showed us, have an uphill battle to climb when it comes to muscling in on Auto Trader’s market share.
Brent crude prices are sitting around $83.4 a barrel, as growing expectations that borrowing costs will be higher for longer, hurting the demand outlook. Commodities and broader risk assets have seen a sell-off in response.”
Salesforce- Matt Britzman, equity analyst:
“Salesforce felt the wrath of the market in after-hours trading after a disappointing quarter. Revenue and operating margins were worse than expected, and guidance also came in light. As bad quarters go, this had all the bells and whistles. Many were hoping to see the macro green shoots discussed back in fourth quarter results starting to break ground, but that wasn’t the case – in fact, it’s almost as if things have gone backwards. Customers are keeping their purse strings tight when it comes to adopting new software services and that’s keeping a lid on top-line growth. There were some glimmers of progress being made from the AI services that Salesforce is slowly rolling out. But it’s becoming quite apparent that the boom seen by those enabling the AI transition (think Nvidia and the cloud giants) isn’t yet translating to those who’ll be offering services off the back of it. After a period of getting fit, Salesforce looks in much better shape to reaccelerate top-line growth – it now needs to start delivering.”
