JD Sports showed no signs of the cost of living crisis in their Christmas trading update with revenue increasing 10% in the 22 weeks to the end of December last year.

Shrugging off any concerns around the health of the consumer, JD Sports said they expected group profit before tax for the year to be at the upper end of current forecasts of £933 million to £985 million.

JD Sports shares were 6% higher at 149p at the time of writing.

The company said many of their websites and stores had achieved record sales figures in the run up to Christmas, as a result of their focus on improving the experience for their customers.

“This is a story of the survival of the fittest. Weaker retailers have fallen by the wayside as the likes of Next and JD have come to the fore – the latter even enjoying highest ever weekly sales in the run-up to Christmas,” said AJ Bell investment director Russ Mould. 

“This is testament to the continuing appeal of the brands which fill JD’s stores and to a youthful consumer who are often living at home and therefore don’t have utility bills, rent or a mortgage to pay.”

“JD is also benefiting from improved availability of products and easing shipping costs – two headwinds which had an impact on profitability in 2022.”

Direct Line shares were down 27% on Wednesday after the insurance group scrapped their dividend due to higher than expected claims due to bad weather.

Total claims are now expected to be £140m, significant higher than the previously estimated £73m. Claims associated with the cold weather are expected to be around £90m.

Having paid out £1.5bn of capital over the last 5 years in dividends to investors, the sharp jump in claims meant Direct Line are being forced to scrap their final dividend for 2022.

Direct Line also said they were writing down the value of their property portfolio by £45m due to a softer property market.

“News that Direct Line won’t be issuing a final dividend this year has rattles markets, with shares down around 27% in early trading. December’s cold spell has caused a significant increase in bad weather claims, with the estimated cost somewhere in the region of £90m,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.

“To make matters worse, motor claims ticked higher as well as third party claims inflation. All in, the fourth quarter presented some serious challenges, and the end result is a weaker capital position with the dividend on the chopping block. It’s not too surprising to see the dividend some under pressure though, the forward yield’s been trending above 10% for most of the second half of 2022 and looked likely to be revised lower at some point.”

Despite pressures from bad weather, train strikes and the like it was apparent that the customers of the Nightcap (LON:NGHT) bars continued to increase its cheer.

The thirteen weeks leading up to and just after the Christmas festivities saw the portfolio of 36 cocktail and late-night bars across the country report a 60.9% increase in revenues. 

Expansion through a programme of organic growth aided by new strategic openings has been impressive.

Revenues for the 26 weeks to 1 January 2023 were £23.2m (£15.9m), the improvement clearly showing that the Nightcap group bars have proved popular with its target customers.

CEO Sarah Willingham stated that:

“To achieve quarterly growth of 60.9% in revenue and 4.7% growth on a like-for-like basis represents a monumental effort, not least during a time when rail unions deliberately chose a number of the biggest most important weeks and weekends for hospitality, for their series of significant rail strikes, including the incredibly important Christmas weeks.

During the first half of our current financial year we also successfully opened another six phenomenal bars across the country, while also delivering record breaking amounts of corporate Christmas parties and a New Year’s Eve which was sold out across most of our 36 sites.

This result is a testament to the resilience of our high disposable income Millennial and Gen Z customers, who continue to enjoy social interactions in a fun party atmosphere in our bars across the country.”

Second Half confidence

Looking forward to the second half of the financial year, the group’s Board has confidence that, in the absence of further rail strikes or other major interruptions, the group will trade in line with management’s expectations.

Analyst Opinion 

Matt Butlin at the group’s brokers Allenby Capital currently has estimates out for the year to end June 2023 for takings rising to £49.3m (£35.9m), with adjusted EBITDA of £3.67m (£3.31m), pre-tax profits of £399,000 (£24,000), taking earnings up to 0.55p (0.23p) per share.

For the coming year his figures suggest an increase in takings to £58.0m, EBITDA £5.0m, a leap in profits to £1.67m, with earnings almost doubling to 1.04p per share.

Conclusion – looking for price recovery

The shares of this £18.1m capitalised bars group offer significant price recovery prospects.

Since the group’s IPO in early 2021 they have been up to 35.5p and have subsequently been down to 6.5p. 

Now at just 8p they have good upside potential as the group pushes forward into 2023.

Higher utilisation levels and growing order books have combined to give this group confidence that 2023 will help to mitigate any external pressures, while seeing the group strengthen its prospects.

The £47m capitalised Gulf Marine Services (LON:GMS) is a world leading provider of advanced self‐propelled self‐elevating support vessels (SESVs). 

The group’s fleet of 13 vessels serves the oil, gas and renewable energy industries from its offices in the United Arab Emirates, Saudi Arabia and Qatar.

The SESVs are used in a broad range of offshore oil and gas platform refurbishment and maintenance activities, well intervention work and offshore wind turbine maintenance work, as well as in offshore oil and gas platform installation and decommissioning and offshore wind turbine installation.

The group has given higher guidance for the current year to end December 2023 for its EBITDA to range between $75m to $83m – which is quite positive.

Executive Chairman Mansour Al Alami stated that:

“Our markets continue to show signs of strength. Vessel utilisation and day rates are continuing to remain resilient amid high demand for our vessels. 

As we progress in to 2023, we aim to mitigate the impact of external pressures, including continued high inflation and higher worldwide interest rates, on our margins and maintain our focus on deleveraging and delivering on operational efficiencies.”

Analyst Opinion – Target Price of 20p a share

Daniel Slater at Arden Partners has a Buy rating out on the group’s shares, with a Target Price of 20p, over four times the current market price of just 4.6p.

His estimates for the year to end December 2022 are for sales of $128.1m ($115.1m) while adjusted pre-tax profits could rise to $25.2m ($20.7m), giving earnings of 1.9c (2.7c) per share.

After this Trading Statement the group has given guidance from which Slater assesses $139.9m sales in the current year, lifting profits up to $29.1m and generating 2.2c in earnings per share.

Conclusion – these shares could easily double

With an order backlog of $369m the demand for the group’s vessels has continued, while improvements in operating efficiencies and strengthening markets will certainly boost the bottom line.

The group’s shares were up to almost 8.7p each ten months ago, they could so easily return to trade at those levels.

Currently trading at only 4.6p each, these shares have the ability to more than double in the next year.

Attention shifted to the macro environment on Tuesday as markets began to prepare for key inflation data from the United States and China, as well as a speech by Fed chair Powell later on Tuesday.

A strong European session on Monday was met by concerns about interest rates in the US session overnight and sparked a wave of caution early on Tuesday. The FTSE 100 was down 0.2% at 7,710 at the time of writing.

“After a Devon Loch style collapse for US stocks late on Monday, the FTSE 100 and other European indices started Tuesday on the back foot,” said AJ Bell investment director Russ Mould.

“Sentiment soured on Wall Street as two members of the Federal Reserve indicated rates would need to move above 5% in 2023 to curb inflationary pressures and this helped erase earlier gains.”

Jerome Powell is due to speak Monday afternoon and will be closely watched for any confirmation of the comments by the Fed members.

Markets will also begin to position for US CPI data on Thursday which has the potential to cause sharp swings in markets. US inflation is expected to fall to 6.5% after dipping to 7.1% last month. A further drop in inflation will be a major positive for risk assets and a precursor for a slow down in rate hikes.

Goldman Sachs recession calls

After a torrent of pessimistic predictions for the global economy, Goldman Sachs rolled back on previously downbeat forecasts and now say they see the European economy expanding 0.6% in 2023.

Goldman’s forecasts were not market moving in themselves, but if more economists join Goldman in making more optimistic predictions, it may provide support for risk assets.

Indeed, there is a consensus building that the second half will be considerably better than the first half, and this could provide the impetus to buy into equities.