Market report: WeWork doesn’t work, Persimmon hunkers down and Asian markets fret
- European futures markets pointing at a weak start to trading after Asia wobbles
- WeWork goes bankrupt despite rescue efforts
- Persimmon sheds costs to get through tough trading, readies for recovery
- Naked Wine CEO Devlin steps down after warning on US trading
Steve Clayton, head of equity funds, Hargreaves Lansdown: “Asian investors took profits in overnight trading, after a senior official at the US Federal Reserve commented that it was too soon to declare victory in the fight against inflation. Markets have been rallying hard since the Fed left rates on hold at its last meeting, leading to a surge in both equity and bond prices. Now it looks as though investors are questioning whether the Fed really will make the multiple cuts to US interest rates that had been priced in during the wave of euphoria. Doubts only really seemed to set in after the US close and Wall Street itself closed in the black. So far, UK and European futures markets are suggesting that investors on this side of the Atlantic will feed off the concerns that pushed Asian markets lower overnight, with falls of up to half a percent indicated.
Persimmon’s Q3 trading statement shows continuing tough trading. Sales per outlet in Q3 were down to 0.48 homes per week from 0.63 this time last year. But the group say that activity is now on the rise, with sales picking up strongly in November, in part driven by demand from landlords. Pricing is under some pressure, with average selling prices down £5k (roughly 2%) to £277,750 since the end of June. Persimmon is not saying that the market is definitively on the turn, but they are stressing their readiness for when it does begin to recover. Some 30 new sites will open up during Spring 2024 and the group highlights that their product is relatively affordable, selling on average at around 25% below national average prices. Some of that is a function of not operating in London though. In the meantime, a hiring freeze remains in place and is expected to lead to a reduction in headcount of around 700. Margins are stable, at similar levels to the first half year, and build costs are easing which should benefit 2024 profitability. The market was relieved by the statement, pushing Persimmon stock 2% higher.
WeWork has finally succumbed to its debts and been declared bankrupt, listing assets of $15bn versus debts of $19bn in a court filing in New Jersey. WeWork used to have a mission statement to “elevate the world’s consciousness”. The company was the product of a boom, and during booms, investors ignore the flashing warning lights. “Charismatic CEO” is a term that should strike fear into any investor’s heart. Innovative financial metrics are rarely truly innovative, instead being a way of disguising a lack of cash profits, and WeWork played that game for all it was worth. But, as always, it is hard to go bust if you owe nothing to anyone else, but relatively simple when you’ve borrowed nineteen thousand million dollars.
Naked Wines CEO Nick Devlin is standing down and founder Rowan Gormley is stepping up to Executive Chairman, after the group delivered a savage cut to profit expectations in a trading update this morning. The problems start with their expansion into the US, where sales are proving harder to win. The group was already in the throes of changing its business model to try to deliver a more reliably profitable structure. That has meant shedding unprofitable sales and led to a 41% drop in sales to new clients and worryingly, a further 15% reduction in repeat sales. Liquidity is looking a little tight, with net cash down to just £3m, but this is the seasonal low point and the group expects to see the cash position improve from here. All in all though, profit guidance is being slashed by over 50% and the net cash position at year end could be £10m-£15m below prior expectations. In the group’s worst-case outlook, it might be zero. The shares lost around a fifth of their value in early trade.”
