The FTSE 100 reversed early losses on Monday as Rishi Sunak looked set to win the race to be the next UK Prime Minister.

Rishi Sunak has over half of Conservative MPs backing him while Penny Mordaunt’s campaign said she had over 90. Backing from 100 MPs is required to be entered into the ballot of Conservative party members later in the week. If Mordaunt fails to achieve 100 backers before 2pm, Sunak will become Prime Minister.

The pound had rallied early in session putting pressure on the FTSE 100’s heavy weight overseas earners. However, as the session progressed the FTSE 100 turned positive lifted by Pearson and sectors exposed to the UK economy.

Autotrader gained 6% and Whitbread added 3.5%. Whitbred is set to release half year results tomorrow.

The UK banks and housebuilders were snapped up by traders piling back into UK assets after Boris Johnson announced he was pulling out of the race.

Gains GBP/USD faded through the session and helped mega caps such as BP, AstraZeneca, and Diageo bounce back from early weakness adding a significant number of points to the FTSE 100.

Although Rishi is being perceived as a the safer option to take up the role at Number 10, whoever becomes the next PM will have face a number of challenges that have no easy answer.

“Investors clearly hope Sunak will stabilise the economy and the political situation – though it’s hard to work out at this point which is the harder task,” said AJ Bell financial analyst, Danni Hewson.

“Assuming Sunak gets his coronation later today, attention will likely turn to the new fiscal plan set to be announced a week today on Halloween. Clearly the aim will be to avoid doing anything which might spook the market.”

Earnings season

Markets are geared up to receive a plethora of corporate results in the coming days. After a period where investors have been intently focused on politics and central banks, company earnings have the opportunity to set the tone in equity markets once more.

“There is likely to be a certain amount of treading water ahead of a heaving week of results with some big hitters on indices reporting financial results,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

HSBC, Whitbread, Barclays, Standard Chartered, Reckitt Benckiser, Shell and Unilever are all set to report this week.

According to its market research, nearly 80% of UK households own at least one of this group’s products.

Founded in 1997, the UP Global Sourcing Holdings (LON:UPGS) group which trades as ‘Ultimate Products’, is the owner, manager, designer and developer of an extensive range of value-focused consumer goods brands. 

The Ultimate Products business

The Oldham based group’s products are sold to a broad cross-section of both large national and international multi-channel retailers as well as smaller national retail chains, incorporating discount retailers, supermarkets, general retailers and online retailers.

Manor Mill, which is the head office in Greater Manchester, includes a spectacular 20,000 sq ft showroom that showcases each of its brands.

The £84m capitalised company, which employs over 370 staff, has its design, sales, marketing, buying, quality assurance, support functions and warehouse facilities across two sites.

In addition, it has an office and showroom in Guangzhou, China and in Cologne, Germany.

The company’s products and its top brands

Ultimate Products sells to over 300 retailers across 38 countries. 

It has five major product categories: Audio; Heating and Cooling; Housewares; Laundry; and Small Domestic Appliances. 

Its brands include Beldray (laundry, floor care, heating and cooling), Intempo (audio), Salter (kitchenware), Petra (small domestic appliances), Kleeneze (laundry and floorcare), and Progress (cookware and bakeware).

In the company’s 2021 trading year on a sales per business basis 35.7% of the group total was small domestic appliances, 26.3% housewares, laundry was 12.6%, audio accounted for 11.3%, heating and cooling was 5.1%, while others represented 8.9%.

On a sales per region basis the UK was 68.1%, rest of Europe 20.3%, Germany 10.2%, the US 0.5%, while the rest of the world was 0.9%.

Insiders have a 39% equity stake 

There are some 89.3m shares in issue, of which four of the group’s directors’ control nearly 39% of the equity, while the Employee Benefit Trust holds another 3.41%.

Other large holders include Schroder Investment (15.2%), Ennismore Fund (9.14%), Hargreaves Lansdown Stockbrokers (1.86%), Canaccord Genuity Wealth (1.46%) and Hargreaves Lansdown Asset Management (1.21%).

Annual results due next week

The group is due to announce its results for the year to end July on Thursday 3 November.

The figures for the July end 2021 year were £136.4m sales, £11.2m adjusted pre-tax profits, earnings of 10.6p and paying a 5.0p per share dividend.

We have already had a Pre-Close Trading Update guiding for £154.2m (up 13%) sales for the 2022 year and generating an underlying pre-tax profit of £15.8m (up 42%).

Apparently, the current trading for the year to end July 2023 is in line with market expectations.

The announcement last week that the group has renewed its licence agreement with Spectrum Brands, which enables the use of the Russell Hobbs brand on certain non-electrical goods for another four years – which is seen by observers to be a very positive development.

Analyst’s opinion

Analysts Clive Black and Darren Shirley at Shore Capital have estimates out for the group to report revenues for its 2022 year of £161.4m, with £15.7m profits and earnings of 13.8p as well as a 6.9p dividend per share.

For the current year Shore Capital has £172.7m sales, £17.0m profits, worth 14.5p in earnings and covering a 7.3p dividend per share.

Over at Equity Development its analysts Chris Wickham and Hannah Crowe have noted that the group’s success in taking brands under full and greater control is an important component of the company’s ongoing transformation from being a sourcing company to an outright brand manager.

With fairly similar estimates on its corporate success the two analysts have put out a ‘fair value assumption for the group’s shares of 250p each.

Conclusion – these shares are far too cheap and are ready to rise

Ahead of next week’s results announcement it looks to me that the current share price of only 95p is far too cheap.

The shares were up to 222p this time last year, since when the group has strengthened, not weakened, its story.

I would suggest that an early rise to trade around the 125p level is more than possible, before more good news becomes available and helps to lift the share price even higher.

Pearson shares gained on Monday as investors studied the education and publishing group’s nine month results.

The group said they saw strength in their English Language Learning, Virtual Learning, Workforce Skills and Assessment & Qualifications operations.

Sales for the period grew 7% with English Language Learning sales the standout out performer, increasing 28%.

Pearson said they were on track to achieve £100m in cost efficiencies in 2023 which will help improve margins.

“This has been another good quarter for Pearson and I am pleased with the continuing momentum the business is demonstrating through our sharp focus on delivery. We are executing well on our plan for accelerated margin improvement,” said Andy Bird, Pearson’s Chief Executive.

Pearson shares were over 7% higher at 954p at the time of writing.

ASOS shares gained tentatively on Monday morning following news Mike Ashley and Frasers Group increased their stake in ASOS to 5.1%.

Ashley is famous for sweeping up troubled retailers and the near 80% drop in ASOS shares this year has proved too tempting for him and Fraser’s Group to build a position.

Frasers Group also announced a strategic investment in Hugo Boss.

“Fresh from standing down from his day job at Frasers Mike Ashley is reportedly on manoeuvres, extending his stake in fashion brand Hugo Boss and taking a position in troubled online retailer ASOS. Clearly the retail kingpin is not done with the sector just yet,” said AJ Bell financial analyst, Danni Hewson.

“ASOS’ financial results revealed some significant problems for the business as spending by its core demographic dries up and the company faces rising costs and a more perilous balance sheet position, but Ashley clearly believes there is still value in the brand.”

UK retailers have taken a beating this year as the cost of living crisis and rising interest rates squeeze retail sales.

Frasers Group has stepped in to buy failing retailers including Game, House of Frasers and Evans Cycles and economic downturns such as the one we could see through the winter will have Mike Ashley licking his lips.