Last week, we suggested that the index was looking more likely to dip down towards the 5,000 area than to push up to fresh all-time highs, so the minor weakness in recent days has come as no major surprise.

We highlighted a couple of weeks ago how major near term trends had already been breached, both in price and RSI. In these environments it does not take much selling to move markets lower.

First, we had the US CPI numbers coming in slightly hotter than expected, curtailing hopes of Fed rate cuts in the next few months. Then, in recent days, we have had the Iranian attacks on Israel and then overnight Israel’s response.

This nervousness has allowed the VIX to tick up above 20 in recent hours, highlighting how the markets remain nervous on how this geopolitical situation could yet spill over into a more serious global situation.

So, in this environment, it has been relatively easy for the index to slip down towards 5,000. Quite frankly it has done rather well to have only slipped this far. So this does suggest that there still remains significant underlying buying momentum, to have been able to keep this selling spell relatively muted. The RSI is already close to oversold levels, which is quite unusual in such a powerful bullish trend. So, barring any further escalation of hostilities, we do see buyers tempted back into the markets in the coming days.

The 4,800 area remains a natural support area if a bout of nervousness does emerge ahead, however due to the relatively robust performance of the index so far to the negative geopolitical news and CPI we do see buyers returning next week, and this could quickly escalate into FOMO and cause quite rapid gains in a number of names that have been sold into in recent days, and this could lift the market back towards the 5,200 area. Moves down and under 4,800 would be needed to turn more negative on the outlook.

There are continuing mutterings in the market that there could soon be some corporate action in the equity of Currys (LON:CURY).

We already know that the technology products and services retailer has been up on the screens of several of the Private Equity houses, as well as those of some of its competitors.

Two Recent Approaches

A month ago, the group reiterated that both Elliott Advisors (UK), the Private Equity player, and JD.com, the Chinese e-commerce company, had backed away from making offers for the group’s equity, even though Elliott had indicated that it was contemplating a 67p a share £742m cash bid, which was 5p higher than its initial approach to the group.

The Board of Currys declared that it was none too interested in talking with potential bidders if they were coming in with cheap offers.

Analysts at Peel Hunt have previously stated that they believe it would take an offer of more than 80p a share for the Board to engage in any discussions.

Subsequent to both the Elliott and the JD.com expressions of interest and then declaring no interest in taking matters further, the retailer concluded the disposal of its Greek interest, the Kotsovolos chain, for £156m net cash – which has bolstered the group’s coffers and also reduced Management time for that chain, enabling it to concentrate upon the recovery of its Nordic operations.

Management Comment

CEO Alex Baldock recently stated that:

“We’ve been working to get the Nordics back on track, while keeping up the UK&I’s encouraging momentum.

Both are progressing well, despite still-challenging markets, and we now feel confident to raise this year’s profit expectations to at least the top of our previous guidance.

Stronger trading, selling more of the solutions and services that boost margins and build customers for life, and strong cost discipline have all been important.

The Business Today

Currys, which was founded in 1884 by Henry Curry as a bicycle-building business before diversifying into the sale of toys, gramophones and radios, floated on the LSE in 1927 and is now a member of the FTSE 250 index of mid-sized companies.

The big advance came about in 2021, when it merged the four brands it then operated – including PC World, Dixons and Carphone Warehouse – into one central brand.

However the retailer has struggled in the last few years with high inflation hitting demand across all of its markets and in July last year it cancelled its dividend and cut spending in its Scandinavian operations.

Today the group, which employs some 25,000 people, is an omnichannel retailer of technology products and services, operating online and through 720 stores in 6 countries.

In the UK & Ireland it trades as Currys and operates its own mobile virtual network, iD Mobile.

In the Nordics it trades under the Elkjøp brand.

It is the market leader in those markets.

The group’s operations also include its impressive ‘state-of-the-art’ repair facilities in Newark, UK, as well as a sourcing office in Hong Kong and an extensive distribution network which enables fast and efficient delivery to stores and homes.

List Of Professional Holders

Some 65% of the retailer’s shares are held in ‘professional hands’, with hedge fund group Redwheel as Currys’ largest shareholder with a 14.4% stake, that group is involved in active management with some $17.9bn of funds.

Spanish investment firm Cobas Asset Management holds 8.5%, followed by Schroders with 8.3% of the equity, while retail industry veteran Mike Ashley’s Frasers Group (LON:FRAS) is the fourth largest shareholder in Currys, with a 6.6% stake, it already has a 10% stake in competitor AO.com (LON:AO.)

Other investment names include Wishbone Management (5.2%), Artemis Investment Management (5.0%), Ruffer (4.6%), JO Hambro (4.6%), and UBS Asset Management (4.0%) while David Ross (Carphone Warehouse) holds 4.4%.

Proposal To Sell iD Mobile

Of those investors, JO Hambro has been demanding that the group’s Board realises shareholder value, suggesting perhaps the disposal of the Currys iD Mobile virtual network operation, which has over 1.5m subscribers to its services and has been valued at around £350m.

Going Forward

The group has clearly stated that with the disposal of Kotsovolos, its structure has been simplified and it will continue to focus on its larger markets of the UK & Ireland and the Nordics, whilst the strengthened balance sheet will increase flexibility to invest in and grow the business, as well as improve shareholder returns.

Nine years ago, the group’s shares were trading at over 500p each, while in the last year their highest has been 72.45p, which was scored in late February this year.

The group, which will be publishing a Pre-Close Full Year Trading Update on Tuesday 14^th May, could well be seeing some fresh market activity if the ‘mutterings’ are true.

It looks as though the £703m capitalised group’s shares, now 63.45p, are destined to rise as shareholder pressure intensifies, possibly ahead of another excursion of predatorial interest.

Despite the cost of living crisis, Sainsbury’s has managed to successfully solidify its presence in the UK grocery market by competing with the budget discounters while retaining its premium appeal.

The Nectar card loyalty scheme keeps customers coming back while offering similar prices to Lidl and Aldi. By offering lower prices exclusively to Nectar card holders it doesn’t damage Sainsbury’s brand and enables them to keep its premium image, and charge a premium for many lines. 

This approach has also been adopted by Tesco highlighting the competitive nature of the grocery market currently.

That said, earlier this year, Sainsbury’s announced a plan to hone in on its grocery strategy. Early progress and further detail will be of much interest as full-year results when they are released on Thursday, 25th April. 

“Investors will be keen to see if there is more flesh on the bones on Sainsbury’s three-year strategy unveiled in February which is aimed at offering more food options and consistent value for shoppers. The plan was a little scant on detail, and while the direction of travel, with a doubling down on groceries, is the right way to go, a more in-depth road map would be welcomed to explain how it will be achieved,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Competition is super tough in the supermarket space, particularly for a mid-market name like Sainsbury’s with cost-of-living pressures meaning it needs to have an ever-sharper eye on offering value. Although it’s succeeded in seizing more market share, that’s put pressure on margins and investors will want to see how long this is likely to continue for.

“Retreating more from home wares and replacing shelf space with more grocery ranges is a big part of the plan, as the grocer takes advantage of customers who are willing to spend more on at home treats. The Taste the Difference range has seen encouraging increases in sales, and investors will want to see that momentum continuing.”

The FTSE 100 was playing catch up with major US indices on Thursday after another weak session over the pond was met by strength in London.

The FTSE 100 was 0.2% higher at the time of writing after the S&P 500 closed in the red for a second day.

London’s weighting towards banks and commodities – and lack of tech – meant it has underperformed the S&P 500, Dow Jones and NASDAQ consistently over the past two years.

However, with interest rate concerns starting to creep back in, US stocks are feeling the pinch as commodity prices rise helping support teh FTSE 100.

“Stickier inflation and a reimagining of the Federal Reserve’s interest rate timelines, together with relatively soft earnings so far this season, means investors have struggled to get too excited across the pond,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

“This of course comes after five months of very strong gains, so an element of breathing room was to be expected at some point – the question now,of course, is whether this is a pause or a more protracted reaction. The UK market, on the other hand, is being lifted by mining stocks amid higher commodity prices. Iran and Israel tensions are also slightly less heightened than they have been, which should inject some relief into trading.”

Airlines rally

easyJet and IAG were among the top risers with gains of 2.2% and 3.9%, respectively, after strong results from peer United Airlines propelled the stocks higher.

“Yesterday, US airlines enjoyed a tailwind from United Airlines beating expectations and saying business travel demand was picking up. Today, UK airlines have entered the same slipstream as EasyJet’s results get the thumbs-up and International Consolidated Airlines flies right behind.

easyJet was also higher after releasing upbeat first-half trading, revealing a sharp drop in losses.

“easyJet’s best-in-class approach to capacity planning and route discipline has allowed it to be one of the biggest beneficiaries of travel’s renaissance. The budget airline has also upped its capacity by around 8% to meet swelling demand. It’s clear the importance of travel isn’t petering out for consumers, and easyJet has grasped the nettle by backing its holidays business which has paid dividends,” said Lund-Yates.