In this week’s Commercial Awareness update, we discuss the biggest drop for the FTSE 100 since the Brexit vote, 02’s data disruption, a week of bailouts and rescue plans and the future of high street restaurant chains.
Big falls for the FTSE 100
On Thursday the FTSE 100 index experienced its biggest drop since the Brexit vote, closing 218 points lower than the previous day at 6,704. Only three stocks were up, in a day which saw around £56 billion wiped off the value of Britain’s biggest companies. Back in August, the index was at over 7,700 points, but worries about trade wars and other factors has led to a rocky time for the companies quoted on the exchange. In the last week, there has been heightened tensions between America and China, after the CFO of Chinese technology company, Huawei was detained by Canadian authorities and faces extradition to the USA. This led to a stock sell off in Asia, which reverberated around the world.
There are also worries amongst investors surrounding Brexit and the struggles that Theresa May is having in getting the deal she’s agreed with the EU through the House of Commons. This does impact on the markets, but for the FTSE 100 it doesn’t necessarily mean a drop. On Monday, the FTSE 100 actually rose because the Brexit worries led to the pound dropping in value. When the pound drops, the international companies on the FTSE 100 (which is a majority) tend to be boosted - this is because they usually report results in dollars, so when there's a weak pound, they have appeared to make more profits when it’s converted.
It’s not just Brexit and international events that affect the UK markets - economic data is key to analysing trends and can cause changes in investor confidence. This week, the Office of National Statistics (ONS) has reported that the UK economy grew by 0.4% in the three months to October - down from 0.6% in the three months to September. There were strong showings of growth in the services and retail sectors; however, there was no growth in the manufacturing sector, with car sales fairing particularly badly.
Companies to watch
The second largest mobile network in the UK, 02 managed to restore its data networks after a day of disruption to its customers last week. The technical fault, which 02 stated was due to third party supplier, Ericsson, meant millions of people were unable to make or receive calls or have access to their 3G and 4G data. 02 has 25 million direct customers, and also provides services to Sky, GiffGaff and Tesco Mobile, consequently affecting a further 7 million people. Both 02 and Ericsson have apologised for the problem and 02 has laid out plans to compensate customers. The mobile phone network is understood to be seeking damages from Ericsson, with some reports stating it could be up to £100 million.
Europe’s biggest infrastructure project, Crossrail, has been bailed out for the third time this year. Due to open this month, the £15 billion project has just received a further £1.4 billion and pushed back it’s finishing date to August 2019. Transport for London expects to miss out on at least £20 million in revenue due to the delay. When open, the line will stretch 60 miles across London, increasing rail capacity for the capital by 10%. According to Crossrail, it estimates that at least £42 billion will be generated for the UK economy and will also support 55,000 jobs.
One of the Government’s largest outsourcing companies, Interserve, has revealed that it is seeking a rescue plan. The company, which constructs and maintains a variety of government buildings, has thousands of contracts across the public sector from window cleaning and cooking to maintaining roads and prisons. After the announcement, its share price dropped 80% - a hefty blow since its share price of 100p this time last year now lying at 11.65p. Interserve employs 45,000 people in the UK and relies on the UK government for 70% of its turnover. The government has stated that it supports the company’s long term recovery plan.
Pizza Express' financial rating has been downgraded by a credit rating agency in response to debts, rising costs and fierce competition. The ratings agency, Moody’s, predicted earnings will fall to £75 million in 2019, down from £80 million this current year and from £94.6 billion in the previous year. This news comes at a time of mounting strain on the high street due to rising costs and declining sales. Other high street restaurants have been forced to close a proportion of their stores, with Prezzo stating they were closing 94 of their outlets earlier this year. This comes in a period of low consumer confidence, where customers are being very cautious in what they spend - putting pressure on restaurants to entice diners with margin squeezing deals.
Furthermore, it is also a time of changing consumer behaviour. With people looking to stay in to eat and the offer of restaurant food delivered to the door - people have been turning to alternatives such as Uber Eats or Deliveroo, especially in big cities.
Food for thought... Is this change in consumer behaviour good? Will the high street be able to amend to stay prosperous?
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