5G Investment Plans Scaled Back

Macro & Overnight

There is increasing talk of Japan normalising its interest rates. With a policy rate of 0.5%, Japan has been fighting the last war for too long. Its yield curve control (YCC) policy has become prohibitively expensive in a world where rates are approaching mid-single-digit percentages. Any move to increase rates in Japan will divert Japanese investors away from buying other bonds, notably US Treasuries (of which they are particularly fond). All other things being equal, this move will increase rates for everyone else, thus adding to the “higher for longer” narrative.

UK Company News

Today, the UK saw two warnings from companies serving global telecom companies investing in 5G networks. Calnex and Spirent. 

Calnex, a provider of test and measurement solutions for telco operators, said it saw solid revenue and profit performance in its second half and expects FY results to align with market expectations. It reports good progress in developing business in the data-centre sector, and the integration of iTrinegy has gone well, opening up opportunities in the applications testing sector. However, it reports a more recent softening of demand, noting that the long-term structural growth drivers remain strong. Its customers are taking a more cautious approach to investment decisions until better visibility on their project development timelines. Based on short-term order run rates, the Board believes that the financial performance in FY24 will be below that achieved in FY23. 

Spirent warned that concerns about the global economy had affected all participants across its industry, and Spirent has not been immune to these pressures. We have seen customers exercise caution towards the end of last year in response to broader macroeconomic conditions, most notable amongst customers for our 5G lab-based Lifecycle Service Assurance applications. This has continued into the beginning of 2023. As a result, we expect revenue to decline slightly in 2023 and to maintain our gross margin with effective supply chain management.

Wincanton, the logistics provider, also warned regarding next year’s results as it has lost a significant contract with HMRC.  

STV, the Scottish TV broadcaster, reported higher profits in the face of lower advertising revenues. See note here, where Jonathan Heliwell points to STV’s improved earnings quality. 

Reach the national and regional newspaper publisher also reported weaker ad revenues. Its current trading environment remains challenging. It sees sustained cost inflation and suppressed market demand for digital advertising. Trading for January and February has been in line with expectations. 

DotDigital, the SaaS provider of omnichannel marketing automation and customer engagement, reported revenue up 9%, with recurring revenue at 95% of the total. Its lower profits reflect planned investment, but the company enters the second half with a stronger pipeline of opportunities. It is confident in meeting market expectations.

Specialist chemicals producer Elementis reported FY results. Revenue was up 4%, and profit was up 14%. The sale of the chromium business for $170m reduces net debt. It is now focused on speciality chemicals with leading positions in attractive markets. It has had an encouraging start to 2023 and expects a dividend resumption this year. 

Baker Greggs reported full-year results. Last year it opened a net 147 new shops. It now has 2,328 shops, with an increasing number in retail parks, Central London, and key transport hubs. Evening trade and delivery are also growing factors. Greggs has 1.1m, active app users. Like-for-like sales in company-managed shops were up 18.8% in the first nine weeks of 2023. Greggs benefits from consumers trading down and being the low-cost supplier in its chosen markets. 

H&T, the pawnbroker and a leading retailer of new and pre-owned jewellery and watches, saw growth of over 50% in its pledge book to finish the year at £101m. H&T continues to benefit from the lack of alternative forms of credit available to its customer demographic. 

In the Style, the recently listed online fashion brand proposes to leave AIM and sell its primary operating subsidiary to its founder in conjunction with a family office.  

Commercial laundry operator Johnson Services reported revenue up 42.1% and profit of £30.3 million vs£5.1 million in 2021. It expects the result for 2023 to be in line with market expectations.

Prognosticator