Investors help off making big bets on UK equities on Friday, with the UK budget dominating the narrative amid fears of the introduction of a raft of measures that could stifle economic growth and dent confidence in UK stocks.

Despite a strong gain in US futures and mild gains in European equities, the FTSE 100 was dead flat at the time of writing after trading in a tight 20-point range for most of the session.

A strong session for NatWest following the release of Q3 helped to offset weakness in Lloyds and Smith & Nephew, resulting in no change in the index.

“The FTSE 100 is in a holding pattern at the end of the week, as the UK Budget looms and investors remain highly cautious. The index has opened lower, with little to ignite overall investor sentiment,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“However, buoyant results from NatWest, as it joined the banking results party, did provide some cheer with the stock more than 3% higher in early trade.

“As the guessing game continues about what Chancellor Rachel Reeves will include in her first Budget, it’s dented consumer confidence in the UK. A closely watched survey from GfK indicates that a despondent mood has taken hold ahead of revelation of the government’s tax and spending plans with concerns about the UK economy rising.”

Investors are concerned about a tax raid on their capital gains and savings, while businesses fear additional taxes that could curtail growth. The combination is doing the UK stock market no favours, and the market will look forward to certainty returning as the budget is delivered next week, although new measures may have damaging ramifications for UK equities.

Lloyds

Lloyds shares sank 4% after the UK Court of Appeal ruled against Lloyds and other financial institutions in motor financing appeals that could lead to billions in redress. Close Brothers was more heavily hit by the decision, with shares falling 15%.

Lloyds has already set aside £450m for potential redress, but there will be fears they are forced to make further provisions. Investors clearly have PPI litigation that cost banks billions fresh in their minds and decided to sell down holdings in banks ahead of further developments.

Since Lloyds kicked off the UK banking earnings season earlier this week, UK-focused FTSE 100 bank earnings have improved steadily. Today, NatWest took the crown in terms of share price reaction with a 4.8% jump.

Investors were delighted with NatWest’s 2.3% increase in income in Q3 compared to Q2 and an upbeat assessment of future earnings.

“NatWest marks the third major UK bank to report better than expected results this week, but this time it’s not driven by impairments. Better income and costs drove the beat today, offset by higher impairments than expected, which does buck the trend we saw from Lloyds and Barclays. That said, default levels remain low at NatWest and that bodes well for performance over the medium term,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.

The results took NatWest shares to the highest levels since 2015.

NatWest wraps up earnings from the three FTSE 100 banks most heavily associated with the UK economy: NatWest, Lloyds, and Barclays. Going into the run of results, there were a number of potential risks, namely falling interest rates and softening economic growth. However, shareholders will be more than satisfied with better-than-expected earnings across the board and the absence of any signs of stress among their core customer base.

“It has been a pretty decent earnings season all-round for the UK banking sector and the positive trend continued with NatWest’s numbers,” said AJ Bell investment director Russ Mould.

“Better-than-expected income and lower-than-expected costs provided the cocktail for upgrades and investors have responded accordingly. The company, and its peer group, have been helped here by slower-than-anticipated rate cuts.”

The writing has been on the wall for some months now – boohoo Group (LON:BOO) has what could be terminal problems unless something really kicks its Board into proper remedial action. 

Just standing back and agreeing to some fairly stringent and expensive funding terms as it desperately attempts to straighten its balance sheet could give the group even more problems. 

The Business 

Set up in Manchester in 2006, boohoo group describes itself as a fashion forward, inclusive and innovative business.  

It believes that its brands are complementary, vibrant and scalable, delivering inspirational, on-trend fashion to group’s customers 24 hours a day, seven days a week.  

The group’s five diverse core brands – boohoo, boohooMAN, PrettyLittleThing, Karen Millen and Debenhams – enable it to serve a broad customer base, globally, with a primary focus on the UK and US markets.  

Since its acquisition in 2021, Debenhams has been transformed from a retailer into a digital marketplace, with a capital-light, low-risk operating model and a focus on fashion, beauty, as well as home. 

The Background 

We have all heard about the ‘ups’ of the fashion group, which have been well-publicised in almost every UK newspaper and investment website. 

Over the last few years, we have read about ‘slave labour’ production lines at various of the clothing group’s suppliers, there was even a Competition and Markets Authority investigation into whether the group had breached any consumer protection laws 

We have also seen tittle-tattle of various of the boohoo glitterati, flying here and there and everywhere on very expensive trips, of driving flashy cars, or enjoying multi-million pound family ceremonies – all this was happening as the online company’s profits were dwindling fast and while the luxury spending appeared to increase. 

Admittedly times have been very challenging over the last year or so, with the group dropping some 13% on its gross merchandise values to £1.81bn (£2.09bn) in the year to end February this year, while its statutory pre-tax loss increased to a minus £159.9m (loss £90.7m). 

In late May proposed option awards for three of the group’s main directors, over millions of shares, rapidly faced investor disapproval and were later withdrawn. 

During the summer the group put one of its office buildings up for sale, based right in Soho in London’s West End. 

Just last month the group declared, as part of its required cost-slashing measures, that it was changing its US operations, cutting out its distribution centre in Pennsylvania, and switching product delivery to its US customers directly from its Sheffield centre. 

A week ago, the company updated that it had signed a £222m debt refinancing package, together with the declared undertaking of ‘a review of options for each division to unlock and maximise shareholder value’, it also announced that its CEO was stepping down. 

Tally Ho The Frasers 

Then, yesterday morning, the group confirmed that it had received letters and accompanying notices from Frasers Group, the online fashion group’s largest shareholder with 27% of the equity, demanding that Mike Ashley be appointed CEO and that Mike Lennon also be appointed a Director. 

Just a day after Ashley and Frasers had stepped back from proceeding with the proposed £111m bid for the Mulberry Group, it published an Open Letter to the Board of the online retailer, detailing the Board Positions being sought. 

In that letter, Frasers did not hold back; it pulled no punches; Ashley called Boohoo’s trading performance “abysmal” and considered that there had been “long-term mismanagement.” 

It declared that the company’s recently announced debt refinancing was “wholly unsatisfactory” and created an “appalling outcome for shareholders“, which showed that the board “has lost its ability to manage boohoo’s business and investments“. 

Accordingly, Frasers is requisitioning a general meeting of Boohoo to appoint Mike Ashley as a director and CEO of Boohoo and Mike Lennon as a director of Boohoo, to take effect without delay.  

It stated that Frasers firmly believes that these appointments are in the best interests of boohoo, its shareholders and its stakeholders. 

While also claiming that the Board appointments proposed by Frasers are now the only way to set a new course for boohoo’s future.  

Market Reaction 

Yesterday the shares of boohoo Group, on the back of a tripled dealing volume at 9.9m shares traded, closed 4% higher at 28.50p, valuing the group at £362m. 

Frasers Group, valued at £3.61bn, saw its shares holding fairly steady at 800p. 

Response To Frasers 

This morning boohoo has responded to the Fraser’s Open Letter, by noting that Ashley is a 73% shareholder in Frasers; in addition, Frasers owns a 23.6% stake in ASOS, and that both Frasers and ASOS operate in similar markets to boohoo.  

It declared that Frasers’ characterisation of Boohoo’s recent debt refinancing is inaccurate and unfair, considering that the refinancing provides certainty for the company around its future requirements and is supported by its existing group of high street banks. 

The company stated that it will publish its interim results in November. 

Early prices show boohoo at 28.35p and Frasers down 8.5p to 791.50p. 

There was mild optimism in equities on Thursday after several days of soggy trade dragged on the FTSE 100 and major US equity indices as corporate updates took centre stage.

Getting the European session off to a good start, Tesla shares surged in the US premarket on strong growth in key lines that was felt in US futures overnight. This was built on Thursday morning by a string of upbeat releases from London-listed companies.

Strong earnings releases by the London Stock Exchange Group, Barclays, and Unilever and firmer oil prices helped London’s leading index increase 0.5% to 8,299.

“Higher oil prices and some good corporate results helped UK stocks to strong gains on Thursday morning,” said AJ Bell investment director Russ Mould.

“Oil was higher amid continuing tensions in the Middle East with observers wary of an impact on supply. This lifted heavyweight energy stocks BP and Shell and their significant weighting in the FTSE 100 meant the index slightly outperformed other European indices.”

Barclays

Barclays was among the top risers with a gain of 3% after following Lloyds in releasing better-than-expected earnings largely driven by lower provisions for bad debts.

Investors were rightly concerned going into the banking earnings season with lower interest rates threatening to erode profits. While lower interest rate have softened the top line, analysts seem to have overegged the negative impact of impairment charges, which has led to banks beating on earnings.

“Barclays has squeezed out a profit beat after better-than-expected impairments and a good grip on costs,” said HL’s Matt Britzman.

“We’re always treated to a different perspective when Barclays reports, with US credit card and investment banking performance differentiating it from more UK-focused peers. On the US card front, after a period of edging higher, default rates look to have stabilised at relatively low levels. 

“The slight disappointment comes from investment banking, where Barclays didn’t quite deliver the knockout performance that some might have hoped for in its trading division, especially after its US peers saw booming activity over the same period. The positive news is that investment banking profits were in line with expectations, and there was strong growth in fees & underwriting from the lulls of last year.”

“This should be taken as a decent set of results, but Barclays has had a material re-rating over the year so far. Much of that’s been justified, and the stock still looks to be trading at a discount to where it should be. However, the lack of visibility over the large investment banking division and how it meets medium-term growth targets is an anchor keeping things down”

Unilever shares enjoyed stronger-than-expected Q3 results, rising a little over 3%. Unilever announced a 4.5% increase in sales for its power brands, which account for more than 75% of group sales.

“A little over a year into the job and CEO Hein Schumacher has made genuine progress with the business. This is reflected in today’s slightly better-than-expected third-quarter sales,” Russ Mould said.

“This performance has been built on improved product innovation but also slowing down price increases. This helps explain why the company expects margin progression to slow overall in the second half of the year.

“Unilever faces a tricky balancing act between protecting its profitability and not alienating shoppers. This is a particular risk in developed markets where customers have the option of trading down to generic alternatives but less of an issue in emerging economies where these kinds of options are not readily available.”

Investors will hope the worst of Unilever’s troubles are behind them.