Equities Update: Johnson & Johnson, Dunelm, SSE…

BoE hawks take the victory with August rate cut now less likely

Sam North, analyst at investment platform eToro, says: “The BoE hawks take the victory. UK inflation held steady at 2% in June, slightly above expectations, driven by rising hotel and restaurant prices, while clothing prices fell. This persistent inflation reduces the likelihood of an August rate cut, with markets reacting cautiously. Further wage data on Thursday will be crucial in shaping future monetary policy decisions.

“The GBP initially spiked higher before pulling back to pre-release levels. For those hawkish BOE members, the ones who wanted to see the central bank keep things on hold again next month, this is exactly what they would have wanted to see. Whilst services inflation was higher, it wasn’t higher than the previous month. A silver lining for the dove maybe but I would be surprised now to see the BOE cut rates on August 1st.”

Earnings strength bolsters Johnson & Johnson as wider market wobbles

Mark Crouch, analyst at investment platform eToro, says: “Pharmaceutical and medical technology giant Johnson & Johnson has advanced slightly in pre-market trading, despite the S&P 500 futures selling off around 1% after reporting solid numbers for its second quarter.

“J&J’s revenue came in just ahead of expectations, with robust operational growth. Though overall earnings took a dive thanks to one-off special charges, adjusted earnings were healthy and well ahead of expectations.

“A key area of concern for investors with pharma companies is what they have coming down the product pipeline. A large portion of J&J’s special charges were down to a slew of acquisitions, including that of cardiovascular tech company Shockwave medical and this should, with time, give a boost to the company’s performance in the growth area of device-assisted cardiovascular treatment. Various formulations of lung cancer drug Rybvrevant are another area showing promise.

“While the wider stock market has made dramatic gains in 2024, Johnson & Johnson’s share price has been a notable underperformer, drifting more than 5% lower since the start of the year, and it will be interesting to see if, going forward, its product pipeline and M&A activity can help spark a reversal in the company’s recent performance.”

Dunelm profits expand again

Adam Vettese, analyst at investment platform eToro, says: “All retailers have faced a challenging environment with inflation affecting input costs as well as demand from the end consumer. Yet Dunelm has once again risen to it. Profits are expanding even against the tougher macro backdrop and these pressures are beginning to ease with the firm benefitting from freight costs coming down. The homeware retailer continues to open new stores, including the newer smaller in town format as opposed to the familiar larger retail park blueprint which early indications say are doing well. 

“The key to Dunelm being able to perform well in these tough conditions is keeping prices low whilst the consumer was feeling the pinch. Taking the hit and making less was a concern in previous updates with margins a potential sticking point, but this has turned around now and with inflationary pressure easing, margins are up 170 basis points on the previous year. The market has received the update well this morning with shares up 5%, taking the stock to within 9% of the 2023 high.”

SSE have the wind in their sales as they push toward renewables  

Mark Crouch, analyst at investment platform eToro, says: “The UK’s determination to move away from fossil fuels has moved into overdrive following Labour’s election win, and SSE is moving in tandem with the new government to embrace the transition. In its latest trading update, SSE confirmed performance in line with expectations, with renewables output for the quarter up 60% year-on-year.

“SSE has already made significant investment to improve their electric power infrastructure and is committing a further £20.5bn to its investment programme, including what will be the world’s largest wind farm, Dogger Bank, off the coast of England, capable of powering six million homes.

“Projects like this though have come at the expense of shareholder dividends, dividends that in the past have been synonymous with utility stocks. And the glaring risk is that renewable energy methods are unreliable, thus profits will likely be volatile.

“However, the company believes that with the business continually expanding its high-quality asset base, shareholders stand to reap the rewards over the long term.”