Equity update: Accenture, Mitchells and Butlers, DFS…

Accenture reports upbeat earnings, boosted by generative AI bookings

 
Mark Crouch, analyst at investment platform eToro, says: “IT services and consulting firm Accenture has delivered a strong set of results for its fourth quarter, beating expectations for both its top and bottom line.

“The stock market has had a bit of a wobble in confidence over AI in recent weeks, but we may now be seeing the pendulum of sentiment swinging back into risk-on mode on the back of strong fundamentals. We saw bullish forward guidance from semiconductor manufacturer Micron technology last night, and while the revenue increases at Accenture are broad-based, a key driver of demand for its services has been firms looking to incorporate generative AI into their businesses.

“Particularly appealing are the strength of its new bookings, rising more than 20%, which suggests burgeoning demand, with orders comfortably outstripping billing, and this is an area where we see how substantially accretive AI has become to its operations. Business tied to generative AI accounted for $ bn in new bookings for the quarter, compared to $900m in the quarter prior. For the year as a whole, generative AI bookings come to $3 billion.

“Overall, it’s a strong set of results and investors will also be cheered by the big hike in Accenture’s dividend, up 14.7% from the quarterly rate in the previous year.”

Mitchells and Butlers washed out by British summer

Adam Vettese, market analyst at investment platform eToro, says: “It is often the British way to complain about the weather, but Mitchells and Butlers might have a genuine grievance given they reported a slowdown in growth over the last quarter, in part blamed by the colder and wetter summer. Rioting in August also disrupted trade as pubs may have had to close early or take precautions to prevent damage.

“Almost every sector has felt pressure from inflation and hospitality is no different, all the while wage increases are pushing the cost base in both directions. It’s fair to say the Toby carvery and All Bar One operator has had a fair bit to contend with in that regard.

“Whilst growth has slowed, it is relative to the industry as a whole, and it seems the company has a firm handle on controlling costs whilst inflation easing off also helps with this. Investors will hope this helps shares tick up further this year and build on the ~10% they have gained so far. They would need to gain some 50% in order to reach their pre-Covid highs.”

DFS profit slump won’t sit well with shareholders

 
Mark Crouch, market analyst at investment platform eToro, says: “DFS shareholders might not be sitting too comfortably after reading the company’s full year results. The UK sofa retailer has struggled to cope with multiple headwinds in the last year, including supply chain disruptions overseas coupled with a drop-off in demand at home. Following two profit warnings, investors might have been hoping that most of the bad news had been priced in.

“It was unfortunate timing for the furniture retailer. Disruption in the Red Sea, one of the company’s major shipping routes, coincided with a cost-of-living crisis in the UK that saw discretionary spending severely hit. To their credit DFS have not sat back with their feet up, the company recently announced a partnership with La-Z-Boy, an iconic brand of reclining armchairs, which will now be available in store and online, and vitally, manufacturing of the La-Z-Boy is in the UK.

“Make no mistake though, the challenges facing DFS are still very much present, and the company not proposing a final dividend is yet another blow to shareholders. The anticipated recovery in the UK housing market, and with it recovery in discretionary household spending cannot come soon enough.”

Everyman wants the premium experience

Adam Vettese, market analyst at investment platform eToro, says: “Everyman’s premium model of cinema-going with service to your seat seems to be going down well if you look at the fact revenue is ticking up as well as expansion to more venues is continuing. This is even against a backdrop of writers’ strikes having held up releases, and consumers feeling the pinch from inflation and maybe reining in their discretionary spend. Both these reasons can explain why the share price is just a quarter of what it was pre-Covid and there are investors out there who will be wary having had their fingers burned on cinema stocks already in recent times.

“These factors should now begin to ease with inflation cooling and a strong pipeline of releases on the way in the latter part of the year. Everyman’s market share is growing off the back of their premium experience, which is all well and good, but investors will now want to see the business turn a profit.”