Market Overview

Dear Investor,

The global oil market is experiencing volatility in early 2024, driven by Saudi Arabia’s unexpected price cuts and geopolitical tensions in Yemen. The market is divided on the medium-term trajectory of oil prices, considering factors like softening global demand and robust US supply growth, along with geopolitical influences.

Amid these dynamics, technical analysis reveals a persistent downtrend in Brent crude. However, a triangle consolidation pattern has emerged, indicating higher swing lows since December. This pattern suggests a potential shift in trend dynamics, with a decisive break above the wedge signalling a change, while a break below could breach long-held support levels. The oil market, as always, remains highly sensitive to geopolitical events and the delicate balance between global forces and market sentiment.

Wishing you a fantastic weekend,

Tom

Market Movers

On the rise: Flutter Entertainment (LSE:FLTR) +21.1% on the week

Flutter Entertainment, the owner of Paddy Power and Betfair, saw its shares surge higher this week despite reporting lower-than-expected fourth-quarter revenues. Investors were optimistic about the company’s upcoming listing on the New York Stock Exchange (NYSE) on January 29, with significant growth potential in the key US market.

Excluding US operations, the fourth-quarter results were in line with expectations. Flutter’s full-year sales increased by 24% to £9.51 billion. The company remains optimistic about its momentum, especially outside the US, with strong performance in the UK&I and international markets.

Flutter’s CEO, Peter Jackson, noted that while sports results were customer-friendly, the underlying momentum in the business remains strong heading into 2024. He highlighted continued strong momentum in the UK&I, supported by recent product enhancements, and international growth driven by their ‘Consolidate and Invest’ markets.

Despite the hit from customer-friendly sporting results in the US, investors looked past it due to excitement about the NYSE debut and positive commentary on the business’s continued momentum. Analysts hope that Flutter’s focus on the emerging US sports betting market will lead to a higher valuation, especially given the significant growth of its FanDuel business in the US.

REGENCY VIEW:

Flutter is a market leader with a uniquely strong position in the US sports betting market. However, the shares trade on a forward PE of 30.4 – which looks expensive relative to its peer group and to forecast EPS growth of 19%.  

On the slide: Superdry (LSE:SDRY) -41.7% on the week

High-street clothing brand, Superdry is facing financial challenges and has enlisted PricewaterhouseCoopers (PwC) to assess its debt-raising options. This decision follows a pre-Christmas profit warning attributed to weak sales caused by unusually mild autumn weather.

Superdry had taken previous steps to strengthen its balance sheet, including modest equity raises and brand licensing deals in Asia-Pacific and India. However, its shares continued to decline, prompting the recent appointment of PwC to review debt-raising options.

There has been speculation about Dunkerton, who owns roughly a quarter of Superdry’s shares, considering taking the company private. About a year ago, he engaged Interpath Advisory, a restructuring firm, to develop cost-cutting plans for the business.

Superdry has yet to provide an update on its Christmas trading performance, but market commentators have suggested that the colder weather may have positively impacted sales.

REGENCY VIEW:

The storm clouds are gathering for Superdry, revenues have stagnated during the last five years and profitability has been elusive. Bargain hunters will not that Superdry’s market cap has fallen below its free cashflow levels, but net debt outstrips cash by more than 3.6:1 on Superdry’s balance sheet and this puts the company in a precarious position.  

Sector Snapshot

An unexpected rise in UK inflation prompted traders to reconsider rate cut expectations from the Bank of England – causing Real Estate to tumble this week.  

While Consumer Discretionary has shown high levels of relative strength this week following gains from Flutter Entertainment, Intercontinental Hotels and Deliveroo.

UK Price Action

The FTSE’s retreat from resistance has accelerated this week with the market dropping more than 200 points between Mon-Wed before clawing back from of the losses yesterday.

With prices snapping the ascending trendline and breaking below the volume-weighted average price from the October lows, the market looks set for a retest of the bottom of the range.