Wall Street Resilience, Pets At Home’s Profits Dented And Man U Sale

Q3 2022 hedge fund letters, conferences and more

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Wall Street Resilience

A sprinkle of sugar in the form of more resilient retail numbers helped lift Wall Street, raising expectations that the US economy will emerge from the inflation fight without too much bruising.

Investors had already registered repeated warnings from central bank policymakers that higher rates will linger for longer, so attention seems to be switching to how much the economy can be preserved from damage, in the meantime.

So, the better than feared update from electronics chain Best Buy helped lift spirits and expectations for the all-important holiday shopping season.

The Federal Open Market Committee minutes out later today will be closely watched for the latest thinking of Fed officials with hopes for a firmer guide on the range rates will rise to.

Trading is expected to be flat at the open, and any indication that the Fed is wavering on going slower with rate rises in the future could cause a fresh slip in share prices.

Oil prices have nudged higher, as OPEC+ member countries indicate that ongoing production restrictions are set to continue. Investors are also weighing up the supply side impact of a G7 plan to cap the price of Russian oil especially given that Russia has indicated it won’t sell crude to nations which support a price limit, adding to worries that fresh shortages could hit the global markets.

A Dent In Profits For Pets At Home

Higher energy prices are partly why the Pets at Home Group PLC (LON:PETS) update has put the cat among the pigeons but changing customer behaviour during the cost-of-living crisis is also behind the dent to profits.

Rising costs pushed down underlying pre-tax profit by 9.3% with higher freight and energy bills taking their toll. Although essentials like cat litter and hygiene products have provided a sunnier spot of rising sales, people are clearly putting off highly discretionary spending on toys and fashion for pets with accessories spending down 3.5%.

The group’s growing customer base does add resilience though because overall petfood sales grew by more than 15.1%. That’s helped keep full year guidance unchanged, with full-year profits still expected in line with expectations but until inflationary pressures ease there will be a distinct lack of cat nip in updates.

Manchester United Sale

The owners of Manchester United PLC (NYSE:MANU) are hoping the urge to shop will extend to those with very deep pockets. Speculation saw shares shoot up like a rocket rising 14% before the market close in New York and confirmation from the club prompted another 11% lift during after-hours trading.

It’s expected there will be plenty of interested parties wanting to get a slice of the action whether through a partnership, full or partial sale, but it will come at a hefty price. Although the market capitalisation, implied by the share price is nudging $2.5 billion, its appraised value is coming in much higher at more than $4.5 billion given the level of interest expected.

The chief executive and majority shareholder of Ineos Sir Jim Ratcliffe had already said he’d been interested in buying the club, but that at the time the family did not want to sell. It’s clear that this time they mean business, having instructed the Raine Group, which helped broker $3.2 billion sale of Chelsea, as club's exclusive financial advisors.

FTX Scandal

Any hopes that a red and white knight fuelled on crypto gains might ride in to pay top dollar for Man U have evaporated though, as the FTX scandal has sent shockwaves through the industry.

The latest revelations from lawyers picking through the detritus left after the collapse of the exchange shows that the company was run as a personal fiefdom of founder Sam Bankman-Fried.

The discovery that one of the units spent $300 million on property in the Bahamas, a large chunk for senior executives and Bankman-Fried’s family shows that governance was completely shot.

Crypto speculators are still circling coins and tokens, picking up Bitcoin at what they see as a bargain price of just over $16,400, adding a little lift to the currency, but with regulators more inclined to wade in, there is likely to be fresh volatility to come.

Now the focus is turning on the celebrities who were paid to be cheerleaders for FTX, and helped entice ordinary investors to part with their money. American footballer Tom Brady and Supermodel Gisele Bundchen are among the stars paid to promote the exchange.

The Texas State Securities Board has confirmed that celebrities endorsements would be part of the broader investigation into what went so wrong as it investigates potential security law breaches.

Already Kim Kardashian has been fined more than $1 million for an Ethereum Max crypto promotion she took part in without disclosing to her millions of followers she had received money to do so.

Regulators are clearly horrified at the damage superstar celebrities can do to the bank balances of vulnerable consumers, who are influenced by almost every move they make. The delusions of quick riches can spread far too rapidly on social media with speculation amplified by reposts by millions of followers.’’

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown