The FTSE 100 dipped on Wednesday after UK inflation data made a Bank of England rate cut in August less likely. 

Many investors were hoping the stars are aligning for a reduction in borrowing costs and today’s data will only serve to dash these hopes. 

“UK stocks took a tumble after components of the latest inflation data lowered the chances of a near-term interest rate cut from the Bank of England,” said Dan Coatsworth, investment analyst at AJ Bell.

“Services inflation still looks too high for comfort. The Bank has long said it is data-driven and today’s numbers don’t look soft enough across the board to convince the policy committee to change gear.

UK inflation remained steady at 2% – the Bank of England’s target – yet the reading was higher than expected, fuelling doubts about the trajectory of inflation in the coming months. 

“The BoE hawks take the victory. UK inflation held steady at 2% in June, slightly above expectations, driven by rising hotel and restaurant prices, while clothing prices fell. This persistent inflation reduces the likelihood of an August rate cut, with markets reacting cautiously. Further wage data on Thursday will be crucial in shaping future monetary policy decisions,” said Sam North, analyst at investment platform eToro.

“The GBP initially spiked higher before pulling back to pre-release levels. For those hawkish BOE members, the ones who wanted to see the central bank keep things on hold again next month, this is exactly what they would have wanted to see. Whilst services inflation was higher, it wasn’t higher than the previous month. A silver lining for the dove maybe but I would be surprised now to see the BOE cut rates on August 1st.”

The Bank of England has been clear that it wants to see sustained evidence of falling inflation, and the figures released this morning do not fit the bill. 

The disappointment with this morning’s release was evident in UK-centric stocks with retailers including JD Sports, Frasers Group and Next among the top fallers.

Although there will be concerns about borrowing costs and the impact on the real economy, some of the FTSE 100’s weakness on Wednesday can be attributed to the stronger pound that weighed on mega-cap overseas earners such as AstraZeneca.

Antofagasta was the top faller, down 4%, as the copper miner followed the recent trend of releasing poor production updates. Despite production rising 20% in the last quarter, full-year production is down, and the group lowered its guidance for the year.

Morningstar analysts have reacted to yesterday’s Ocado results with a fair value estimate suggesting Ocado is worth three times the current share price.

Yesterday, Ocado reported a reassuring increase in revenue and a very encouraging increase in EBITDA guidance for the year. After many periods of disappointing updates, Ocado finally produced respectable increases in revenue, demonstrating progress in the rollout of its technology business and higher engagement with premium food delivery in conjunction with M&S.

Shares spiked higher early in the session after results were released, but the gains diminished with short-term traders banking profits as the session progressed.

However, those with longer time frames, such as the equity analysts at Morningstar, see the potential for substantial appreciation in the share price as the company gains further traction in its grocery delivery service, and the technology element of Ocado’s product suite.

“Ocado shareholders finally received some good news yesterday in the form of a strong half year update, with group revenues up almost 13%. The strong share price reaction came as management upgraded profit guidance for the full year,” explained Michael Field, European Equity Strategist, Morningstar.

“Underlying this strong performance was Ocado’s Technology Solutions business, the area of the company that deals with automation, fulfilment, and the online grocery market. Technology Solutions saw growth of more than 20% in the first half of the year, with an operating margin of 14.5%, materially higher than the rest of the Ocado business. 

“Some investors might expect that shares are up with events after a near 15% move in the share price, but we believe there is far more to come with this story. Our fair value estimate for this stock is GBX 920, almost triple the current share price!

“How do we square the difference between our fair value and the GBX 400 consensus target price? Ultimately it comes down to small differences in assumptions, but over a very long time period. Over the longer term we believe online penetration will reach 25% of the grocery market, with this generating strong growth for both Ocado’s retail and technology solutions businesses.”

Ocado shares were trading at 358p at the time of writing.

hVIVO gathered momentum in the first half of 2024 achieving a 30.6% increase in revenue to £35.6 million compared to £27.3 million in the same period last year.

The company’s EBITDA margin has also seen a significant boost, rising to approximately 24% from 19.1% in H1 2023. This improvement is attributed to enhanced operational efficiencies and better utilisation of quarantine facilities.

UK Investor Magazine recently included hVIVO in our ‘Four UK Small Cap Growth Shares to Watch Summer 2024’. Today’s results highlight just why we included hVIVO.

The combination of higher revenue and operational strength saw hVIVO reaffirm its full-year revenue guidance of £62 million. hVIVO has set a medium-term revenue target of £100 million by 2028.

Investors will be pleased to see the company’s contracted orderbook at £71 million as of 30 June 2024, providing good visibility into 2025. Notably, 100% of the full-year 2024 revenue guidance is already contracted.

hVIVO’s new facility in Canary Wharf is now fully operational, positioning the company for future growth. This state-of-the-art quarantine facility offers increased capacity and containment level 3 capability, allowing hVIVO to expand its core human challenge trial offering to include new pathogen models.

hVIVO continues to diversify its service offering, which is expected to positively impact growth and margins. New services include Phase II and Phase III field studies, volunteer recruitment services, and standalone hLAB services.

In a significant development, hVIVO recently secured its largest field study contract to date. The company has been selected as the sole UK clinical site for a multicentre study, with plans to enrol up to 1,000 volunteers.

“The results of H1 2024 reflect the hard work, flexibility and commitment of the team. During a period of significant activity including the build-out and move to a new facility, we have not only materially increased our revenue but also further improved our margins. The concurrent running of three different facilities helped to boost our revenues for H1 2024, creating an expected H1 2024 weighting,” said Yamin ‘Mo’ Khan, Chief Executive Officer of hVIVO.

“We have full visibility over our expected 2024 revenues and continue to deliver on our sustainable growth strategy. The orderbook remains strong in spite of record revenue delivery in H1 2024. The recent Omicron characterisation study contract and the award of our largest field study to date are two key sales highlights for H1 2024. In addition, the current sales pipeline includes several advanced stage opportunities that we expect to convert in the coming months.  

“The outlook for hVIVO is positive as we welcomed our first volunteers into our new facility at Canary Wharf – the world’s largest human challenge trial unit. I believe we have laid the foundations for strong performance in the months and years ahead.”

Spectra Systems Corporation, a leading provider of high-speed banknote authentication and security technologies, has announced an agreement worth £29.7 million to manufacture sensors for an existing central bank customer.

Spectra Systems shares were 13% higher on the back of the news on Tuesday.

The contract is expected to expand further, with an additional £1.3 million tranche anticipated later this year upon signing of the related manufacturing agreement. This would bring the total value of the sensor manufacturing contract to £31 million.

Revenue from this substantial deal is projected to be recognised from the first quarter of 2025 through the fourth quarter of 2027, with additional manufacturing contract revenues of about £3.5 million expected to continue until 2029.

“This long-awaited contract for the third generation of sensors follows after over $14.8 million of development funding by our customer and reflects both the continued need for banknotes as well as the trust our customer has in Spectra Systems,” said Dr. Nabil Lawandy, Chief Executive Officer.

The FTSE 100 dropped on Tuesday as several disappointing company-specific developments culminated to offset any positivity investors may have had after hearing dovish comments by Fed Chair Powell overnight.

Utilities companies United Utilities and Severn Trent dropped on concerns around regulatory action, Rio Tinto’s recent production underwhelmed sending shares lower, and Burberry continued the sell-off amid concerns about the luxury sector.

London’s flagship index was down 0.5% at 8,140 at the time of writing.

“The FTSE 100 took a step back after the index was dragged down by Rio Tinto and Experian,” says Dan Coatsworth, investment analyst at AJ Bell.

“Rio Tinto disappointed with its latest production update, with iron ore the biggest worry area after a weak quarter for output. Experian’s update was generally fine but didn’t deliver the earnings upgrades needed to justify its premium stock rating, leaving investors a tad miffed. It also didn’t help that chief operating officer Craig Boundy handed in his notice as he’s got a new job running McAfee.”

Rio Tinto’s update weighed on the rest of the mining sector already under pressure after a string of soft China economic data releases. Rio Tinto fell 3.3% while Glencore dropped 2.2%.

United Utilities and Severn Trent

United Utilities and Severn Trent were down 2.8% and 2.7%, respectively, after Ofwat, the UK’s water regulator, announced an industry-wide investigation into sewage spills.

“Shares in United Utilities and Severn Trent have fallen as it was revealed they are facing enforcement cases brought by the regulator Ofwat. The action stems from analysis by Ofwat of their environmental performance in particular how regularly sewage is discharged via storm overflows,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown

“Ofwat is showing more teeth following the huge public outcry about the amount of pollution in the UK’s waterways. Bringing an enforcement case means that Ofwat is concerned that the companies have failed to meet their obligations. A detailed investigation will follow to determine if contraventions have occurred and what measures they may have to take to clean up their act. If there are serious breaches fines could follow.”

Although the index was firmly in the red, there were some positive stories for investors on Tuesday.

B&M gained 5% after revealing sales growth across all regions as shoppers persisted with budget options amid the cost of living crisis.

“B&M’s trading update is a bit of a mixed bag,” said Mark Crouch, analyst at investment platform eToro.

“A steady increase in revenues helped by higher volumes across its businesses indicates the discount retailer is on course to achieve cash generating growth across the full financial year. However, B&M’s UK like-for-like revenue was down 3.5%, with increasing competition throwing a spanner in the works. 

“B&M, who sell a wide range of household items, managed to capitalise during the cost-of-living crisis, offering household brands at cheaper prices as more consumers turned away from big name stores in pursuit of value. However, with inflation cooling in recent months, rivals are pushing back.