Must read: pound rallies, AO World, Hermes, 888, Dechra, Superdry

Our head of investment rounds up the morning's big news.

GLOBAL MARKETS 

The FTSE 100 is on track for its fourth consecutive weekly gain and is up for the fifth session in a row amid broader risk-on appetite across European equities. 

The pound has hit a 10-month high against the US dollar while EUR/USD has rallied to the highest level since April 2022. Cable (GBP/USD) is up over 3.6% year-to-date and is up over 12% in six months since the fiscal fiasco around the mini-budget last September, which heavily punished the British currency.

Since the lows, the pound has been steadily regaining ground, while the US dollar depreciates as traders price in the growing expectation that we are near the peak of the Federal Reserve’s rate hiking cycle.

• Learn more: SIPP Portfolio Ideas | How SIPPs Work | Transfer a SIPP

After last year’s bull run for the greenback driven by aggressive monetary tightening in the US, 2023 has seen King Dollar lose its crown with the euro and the pound appreciating significantly against it. However, there is still a long way to go to revisit the levels of dollar weakness seen at the end of 2020 and the beginning of 2021.

AO WORLD 

AO World (LSE:AO.) said it expects full-year adjusted core profit for the year ended 31 March to come in at the top end of its forecast for between £37.5 million and £45 million, sending shares sharply higher. Full-year revenues are seen hitting £1.13 billion, in line with its plans. The electrical retailer said it sees progress in improving both operational cost efficiencies and margins which will continue through the next 12 months and beyond. This morning, broker Jefferies has raised its target price on the stock from 85p to 90p. 

In February, AO World raised its profit guidance for the third time since November despite pressures from the consumer slowdown and cost inflation. The company has been focusing on cutting costs and finding other efficiencies since last year. 

AO World shares fared extremely well at the height of the pandemic during 2020 amid the boom in e-commerce and DIY. However, as the Covid-era glow faded, the stock plunged from its January 2021 high to a trough last summer when the stock was worth less than a tenth of its peak valuation. The past six months have seen a return to more positive price action with shares up over 50%. 

HERMES 

Hermes International SA (EURONEXT:RMS) first quarter sales grew by 23% to 3.38 billion euros ahead of expectations. Sales in China grew by 23% and Americas region sales increased by 19%. The company said it is enjoying very good growth in mainland China with tourist flows boosting sales in Hong Kong and Macau. However, the company remains ‘vigilant’ towards the US macroeconomy. At the beginning of the year the luxury brand raised prices by 7% to offset the pressures from inflation. 

China is providing a tailwind for Hermes sales, with the unwind of Beijing’s strict anti-Covid measures releasing a wave of pent-up demand for luxury products. The resumption of international travel from the mainland is also boosting sales from Chinese shoppers elsewhere. Hermes is in the rare and fortunate position in which raising its prices can in fact boost the allure and demand for its products, in stark contrast to most goods which suffer less demand as prices rise. 

The US this quarter also proved its resilience, although the Birkin bag maker remains cautious, with the potential threat of recession stateside and a softening consumer outlook.

Shares are trading higher today, extending recent gains with the stock up by almost a third since the start of the year. 

888

888 Holdings (LSE:888) reported first quarter revenue of £446 million down from £469 million in the same period last year. It expects full-year 2023 revenues to come in lower than 2022 by a low to mid single digit percentage. However, the gambling group expects 2023 profit to come in significant higher after 2022 adjusted core profit rose by 82% to £217 million, lifting shares by over 12%.   

888 said it expects no further impact on its UK operations or revenue from the settlement between the Gambling Commission and William Hill. Last month, 888 was given a record fine from the gambling watchdog following a regulatory investigation. 

The integration of William Hill is expected to unlock around £150 million cash synergies per year. However, regulation remains a potential headwind as 888 awaits the Gambling Act white paper.

• FTSE for Friday: new forecasts for FTSE 100
• What 120 years of stock market data tells us about where to invest today

888 has been dealing with a tough macroeconomic backdrop, high costs because of the inflation backdrop and increased interest costs. Business in the UK and Ireland struggled in the first quarter amid the impact of safer gambling changes while international online also suffered partly because of compliance changes in the Middle East. 

Shares are enjoying a boost nonetheless as investors cheer its rosy profit outlook. However, 888 has sharply underperformed the wider market this year down by around 20% and is down nearly 70% year-on-year, in stark contrast to Flutter Entertainment (LSE:FLTR) which is up over 70%.

DECHRA PHARMA 

Shares in Dechra Pharmaceuticals (LSE:DPH) are trading up over 34% after announcing talks with private equity firm EQT backed by the Abu Dhai Investment Authority for a possible all-cash offer. Shareholders in the vet firm would receive 4,070 pence per share in the deal, a 46.6% premium to Thursday’s closing price. EQT has until 11 May to make a firm offer, and Dechra said it plans to recommend the deal.  

Dechra fared extremely well during the pet boom during the pandemic as a strong stay-at-home stock. However, it has struggled since, issuing a profit warning in February, citing unpredictable trading conditions.

Although shares in Dechra are soaring today on the M&A speculation, the stock is not fully pricing in the all-cash off suggesting there is still some uncertainty about whether the deal will cross the line. Before today’s surge, shares had fallen sharply over the last year from 3,822p in April 2022 to 2800p by Thursday’s close.

SUPERDRY 

Superdry (LSE:SDRY) said it is mulling a capital raise of up to 20% and has withdrawn its 2023 profit guidance. It follows a profit warning in January when sales failed to meet expectations. The fashion brand is aiming to cut costs by over £35 million amid the tough macroeconomic backdrop with the cost-of-living crisis, a softening consumer and falling real wages. Bad weather in recent months also reduced high street shopping visits, weighing on Superdry’s sales. 

Shares in Superdry have plunged over 16% bringing its year-to-date loss to over 34%.