View from the City: Hope on the horizon after a tough Q2
Edison Group's Russell Pointon looks at the mixed picture of publicly listed winners and losers and other consumer sectors during Q2
Over the past three months, the casino and gaming sector has fared poorly, with the UK down by 10%, Europe 12% and North America 14% – all significantly below the returns from their regional benchmarks.
While this might sound bleak, there have been more encouraging trends for some, with positive share price reactions to the results of companies such as Entain, Flutter and Rank Group that provided either better-than-expected results or upgrades to their profit guidance.
Downgrades for other firms show the picture is not universally positive, however, as might be expected in a low-growth world.
This mixed picture of winners and losers is reflected in other consumer sectors, where the overall absolute level of expected profits for the year continued to decline this Q2.
However, we believe there are encouraging trends for the individual companies within those overall estimates.
Our data indicates more companies in the UK and European consumer sectors enjoyed upgrades to consensus 2024 profit estimates in Q2 than suffered downgrades.
This was the first quarter in about a year in which there was a better trend in the number of upgrades to downgrades and followed a similar swing for the North American companies in the prior quarter.
We think this is significant, as investors are more willing to back shares when they can see positive momentum in estimates.
The big question is whether these trends will continue. From a macroeconomic perspective, the outlook, per the Bank of England, is improving for the UK, while there are increasing fears of economic weakness or even recession in the US.
It goes without saying that US economic weakness would be less than helpful for stock market valuations in general, but it would lead investors to look for investment opportunities elsewhere that are less affected by potential weakness across the pond.