Is lower tech spend cyclical or structural?

Macro & Overnight

It is hard to digest the news and not question whether the tide of ESG has turned. The sound of backtracking on ULEZ, questions over the commitment to the phasing out of ICE cars by 2030 and the governance of NatWest Bank feel like a gathering of momentum against ideological purpose at all costs. As the economist Thomas Sowell said, there are no solutions, only trade-offs.

UK Company News

FDM reported that revenue increased by 18% to £179.9m profit before tax increased by 34% to £29.8m. It said market conditions weakened through the second quarter and adjusted recruitment, training and unallocated resource better to align the supply of consultants with demand. Consultant utilisation rate 93.4% (2022: 97.6%). Training completions in the first half were 911 (2022: 1,584). It has a robust balance sheet, with £38.1 million cash and remains optimistic that there will be an improvement in client confidence as the second half progresses. It anticipates that the Group’s financial performance for the year will broadly align with its expectations.

Learning Technologies updated a lower-than-expected level of transactional and project-based work due to the lengthening of sales cycles, particularly for our financial services and technology clients. GP Strategies delivered margins of c.12% in the first half, lower than the 14% margins achieved in Q4 2022. It now expects revenues of £550 million to £570 million and adjusted EBIT of £98 million to £103m, significantly lower than prior guidance. 

As with S4 Capital, FDM and Learning Technology illustrate the difficulty of selling to the technology sector. This sector is in a cyclical retreat, taking longer to make purchasing decisions. However, there is also a structural change afoot. If AI collapses the cost of knowledge work, some of this spending will be gone for good. 

Marstons updated for the 42 weeks to 22 July that Like-for-like sales were +10.7%. It has trialled rolling out the franchise-style model in 13 of our food-led managed pubs to complement the 717 wet-led pubs currently operated under this model and is pleased with the result. It anticipates that net debt will reduce by £50-£60 million at the end of FY2023 and expects the same level of debt reduction in FY2024.

Motorpoint said that difficult macroeconomic conditions hampered growth and profitability during the second half of FY23. It will now focus on increasing margins and reducing costs. This should improve cash generation and profits and provide selective strategic investment opportunities. It has taken decisive action to lower the breakeven volume to a level which maintains cash-generative trading. Trading performance improved throughout Q1, and it expects this trend to continue in Q2, reflecting further improvements in margin and cost base reductions.

Wilmington issued a FY update saying organic revenue growth is expected to be 9%, with reported revenues in the order of £123.5m and that cash conversion continued to be strong.

Prognosticator