M&S shares fell as much as 3.8% on Tuesday as investors digested a warning that its new look website would take a few months to ‘settle in’, but while the initial reaction was sharply negative, and earnings were lower for the third straight year, at £623m they were slightly ahead of consensus estimates and by the close of trade on the day the stock was down only five pence.
Vodafone and Royal Mail on the other hand ended the trading sessions on which they released their results sharply lower, down 5.4% and 6% respectively.
Vodafone stock fell on the back of £6.6bn in writedowns of its European business and comments that it expected the market to remain challenging going forward. The fact that its European businesses were struggling was not a particular surprise, but the extent of the writedowns and the outlook spooked investors.
The reasons behind Royal Mail’s fall are well explained in the piece How endangered is the Royal Mail’s dividend? but the group’s outlook was clearly a concern for investors, especially as it was Royal Mail’s first set of numbers as a listed entity.
Contrary to the above poor performances, SABMiller shares jumped 3.4% on Thursday on news that it had boosted earnings a measly 1% to £6.45bn for the full year.
One of the main differences between SABMillier’s numbers and those of the Vodafone and Royal Mail is that SABMiller(and to a lesser degree M&S) managed to produce numbers that beat analyst expectations and, importantly in SAB’s case, it announced proactive plans to continue to reduce costs.
Forecaster's crystal balls looking a little dull
Investors are skittish at the best of times, but the current climate and the high degree of uncertainty about the future has put everyone on high alert – and, as a result, even the slightest underperformance is being punished.
Much of the reason for this lies in the performance of markets over the course of the first quarter of the year.
Investors started the year fairly optimistic about the prospects for growth, but the first few months have been fairly muddled from an economic news point of view, and making matters worse, all the asset classes that were written off going into 2014 have done pretty well: anyone holding bonds, gold and emerging market stocks at the beginning of 2014 will be feeling fairly cheery right now.
While most are reasonably confident that the UK (and the rest of the developed world) has taken its first faltering steps toward recovery, and that the first quarter has been nothing more than a slight setback on the road to normalisation, there is a possibility that the outlook painted at the end of 2013 was too optimistic.
As Michael Stanes of Heartwood Asset Management put it: “Is the recovery since 2008 a temporary resuscitation of a slowing economy by way of significant stimulus and so that weakness will eventually resurface, or is it rather a slow, erratic return to normality?”
The first rise in UK inflation in 10 months will have bolstered the argument that the recovery is on track, but for many, the key element to a satisfactory answer to that question is going to be the numbers coming out of UK corporates, especially those exposed to the consumer in one way or another. And, as can be seen from last week’s results, underperformance is being punished.
Portfolio Adviser has made the point before that the current market is one in which stock picking ability is likely to come to the fore, but increasingly it is clear that success is more likely to be achieved by avoiding the dogs than picking the diamonds.
