Similar to last month, defensive shares were out of favour among FTSE 100 investors.
In May the FTSE 100 index grew by a respectable 2.2 per cent. While that was significantly below April’s gains of over 6 per cent, the index nevertheless managed to reach a new all-time high of 7,877.5.
Propelling May’s growth was the Irish bookmaker Paddy Power Betfair, which surged by 27 per cent. While new restriction on Fixed Odds Betting Terminals were a downer on the share price of many of the ‘old four’ gambling firms, a recent decision in the US to legalise spots gambling beyond Las Vegas and Atlantic City, from which Paddy Power Betfair is set to benefit, excited investors.
As Russ Mould of AJ Bell notes: ‘Paddy Power Betfair already has a presence in New Jersey and its move to combined with US firm FanDuel shows that management is moving quickly to capitalise upon what could be a massive opportunity, in particular for a company with its online betting expertise.’
Second among the FTSE 100’s best performers in May was Ashtead, an equipment rental company, which saw gains of 15 per cent. Powering this growth was ‘optimism regarding the US economy, as the company derives around 90 per cent of its sales Stateside via its Sunbelt operation,’ notes Mould.
In third place was Burberry which surged by 13 per cent. ‘Full-year results that met expectations gave Burberry a lift, helped by equally good results from global peers LVMH and Gucci-owner Kering,’ comments Mould. In particular growth returned to Asia, following an anti-corruption drive by the Chinese Communist Party which hit sales in 2016 and 2017.
Defensive shares out of favour
BT saw the biggest losses on the index, falling by 18 per cent. ‘Chief executive Gavin Patterson’s attempts to drive profits – and thus dividends – growth through investment in mobile services (via EE) and sports content (to boost its broadband business) have yet to pay off,’ says Mould.
‘Patterson’s plans for a return to rapid dividend growth have been abandoned and some analysts are now questioning whether the 15.4p-a-share payment can be afforded in the long run, even after a settlement designed to tackle the firm’s enormous pension deficit.’
Royal Mail was hit by disappointing full-year results. While many analysts had expected the company to profit from a boom in online shopping, results proved otherwise. Also weighing on the company’s shares was the departure of chief executive Moya Greene, who had held the post since Royal Mail was floated in 2013.
Vodafone also saw disappointing share price performance, falling by 9.3 per cent. This was in part due to the announcement that chief executive Vittorio Calao was stepping down, to be replaced by chief financial officer Nick Read in October of this year.
‘Although this looked like a smooth bit of succession planning, the shares wobbled,’ observes Mould. ‘Colao has elected to step down just after he has overseen a major acquisition (the €18 billion purchase of Liberty Global’s European cable assets), and just as the company must start to spend to buy fresh spectrum across its European mobile markets, to prepare for the launch of next-generation 5G services.’