Market Prognosis

A concise summary of the major macro events of the past 24 hours, and selected UK company-specific news.

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April 27, 2023

Telecom Plus an inflation winner

Macro & Overnight

The return of banking fear in the US has provoked worries of deflation and recession. Oil prices have weakened further, with Brent crude below $80 again. Gold, silver and Bitcoin have rallied, and bond yields are higher on financial stability fears.


UK Company News

Astra Zeneca reported stable revenue despite a decline in COVID-19 medicines. Sales of oncology medicines increased by 19%. A gross margin of 83%, up four percentage points, reflected the decline in sales of lower-margin COVID-19 medicines. EPS increased by 6%, and guidance for FY 2023 was reiterated.  

Unilever reported sales growth of 10.5%, exceeded by price growth of 10.7% leading to a real decline of 0.2%. An example of pricing power at work. 

Sainsbury expects to deliver results at the top end of expectations. 

The mixed signal chip maker, Ensilica, announces a trading update with new contract momentum. As a result, the Board of Ensilica now expects the results for FY23 to exceed current market expectations for EBITDA by approximately 30%, with revenue expected to remain in line with market expectations.

Chocolatier, Hotel Chocolat updated on what it terms a transition year to re-shape the business in readiness for the next growth stage. Trading to 23 April, which included the Easter period, achieved a high seasonal full-price sell-through of 86%, with gross margins up by 500 basis points. It expects sales to be slightly lower than market expectations, with underlying PBT now expected to be breakeven. UK retail like-for-like momentum reported for H1 in the interim trading update has continued. Digital and wholesale channels had lower revenues than initially planned. Customer database growth continued, with >2.75m VIP members. Its cash position is £23m.

Hotel Chocolat’s founder-led approach to preserve capital and focus on its regional and product strengths makes sense. When the repositioning works through, it could leave the company looking as tasty as its artisanal products. (Listen to founder CEO Angus Thirwell talk about his business on ITCOM, episode 4). 

Brick and block maker, Ibstock reported a subdued demand environment in the residential new build and RMI markets. However, it remains confident of delivering in line with market expectations. Q1 operating profit was marginally ahead of expectations, reflecting disciplined capacity and cost management. The pace of cost inflation was more modest than in 2022.

Naked Wines updated that its revenue is in line with guidance at c.£350m for FY23, and operating profit is expected to be £15-18m, at the top end or slightly above the guided range. Restructuring cash costs lower and non-cash stock costs higher than prior guidance Net cash balance of £10m and its inventory reduction is on track. It has a fully operational $60m credit facility, having transitioned from Silicon Valley Bank to First Citizen Bank. 

The Naked pivot to profit seems to be on track. However, the market, typically unforgiving of such things, puts little faith in the strategy’s chances of working. 

Spectris, the precision measurement specialist, delivered 24% organic sales growth and margins that continue progressing to plan, reflecting easing supply chains. It has net cash of £278.4 million and has confidence in delivering guidance of 6-7% organic sales growth and margin expansion. It sees the weighting of profit expected to be higher than usual in the first half. 

We regularly hear companies say greater than expected H2 weighting. But how often do you see unexpected H1 weighting?  

Telecom Plus, trading as Utility Warehouse and UW, updated that its profits should be in line with expectations, and it intends to pay a total dividend for the year of 80p (FY22: 57p). Partner numbers increased to almost 60,000 with growing demand for an additional income as the cost of living continues to rise. It has confidence in delivering another year of double-digit organic customer growth. Falling wholesale energy prices are expected to feed into lower energy bills later this year, albeit at elevated levels. However, there remains considerable upward pressure on household budgets.

UW/TEP has been a winner in the energy, inflation and cost of living crises. While inflation has peaked, the company’s growth trajectory will likely have a continuing effect as it recruits more agents and customers. The shares have been re-rated but still offer attractive yield, growth and return characteristics.


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