Fast Retailing Q1 Profit Rises 7.4% but Misses Forecasts as China Decline Prompts Strategy Shift

LOCAL MARKET COMMENTARY

South Africa's Top 40 index closed 0.8% higher on Thursday at 75,124.7 points, with the All Share index advancing 0.7% to 83,698.3 points. Manufacturing output declined by 2.6% year-on-year in November, reversing the 0.9% growth recorded in October. Additionally, the National Consumer Commission has launched an investigation into FlySafair for alleged overbooking practices, assessing compliance with the Consumer Protection Act.

EUROPEAN MARKET COMMENTARY

European markets ended Thursday in positive territory, driven by strength in the healthcare and mining sectors. In the eurozone, retail sales growth for November missed expectations, reflecting subdued consumer spending amidst ongoing economic headwinds. Meanwhile, Germany reported its highest level of company insolvencies since 2009 during Q4 2024, with 4,215 filings affecting nearly 38,000 jobs, according to the Halle Institute for Economic Research. The surge in insolvencies was attributed to elevated interest rates and rising costs.

US MARKET COMMENTARY

U.S. markets remained closed on Thursday in observance of a national day of mourning for former President Jimmy Carter.

ASIA MARKET COMMENTARY

Asia-Pacific markets traded mostly lower this morning as investors reacted to Japan's economic indicators. November's real household spending in Japan contracted 0.4% year-on-year, improving from October's 1.3% decline and outperforming expectations of a 0.6% drop. Real household income rose 0.7% to 514,409 yen ($3,253). Meanwhile, the People’s Bank of China temporarily paused treasury bond purchases due to supply constraints, with plans to resume based on market dynamics.

CURRENCY MARKET COMMENTARY

The South African rand remained steady on Thursday as investors evaluated the outlook for U.S. interest rates and trade policies under the incoming administration. The British pound fell to its lowest level since late 2023, pressured by a global bond selloff that pushed UK government borrowing costs to their highest in over 16 years, raising concerns over fiscal stability. Meanwhile, the U.S. dollar looked set to extend its longest weekly winning streak in over a year, buoyed by rising bond yields and expectations of strong labor market data.

COMMODITY MARKET COMMENTARY

Gold prices climbed to a near four-week high on Thursday, driven by safe-haven demand as investors considered the potential economic and inflationary impacts of incoming U.S. policies. Oil prices continued their upward trajectory in early Asian trading, marking a third consecutive weekly gain, supported by increased heating fuel demand due to colder temperatures in the U.S. and Europe.

Assura Plc (AHR) 00.00%

Assura plc, the UK’s leading diversified healthcare REIT, has issued its trading update for Q3 ending 31 December 2024, showcasing sustained momentum and strategic achievements. CEO Jonathan Murphy highlighted the successful integration of 14 newly acquired private hospitals, which are performing as anticipated, alongside a robust asset disposal program that generated £48 million in net proceeds during the quarter. Active discussions are underway for an additional £110 million in disposals, with a further £90 million pipeline identified. These initiatives position Assura to achieve its target net debt to EBITDA ratio below 9x and loan-to-value (LTV) below 45% within the next 12 to 18 months, reinforcing its financial resilience. The quarter also saw significant strides in rent reviews, with 59 settlements generating a 7.2% uplift on existing rents, equating to £0.6 million, and the completion of one asset enhancement project and five lease regears. Assura’s development pipeline remains strong, with five active projects valued at £44 million, including two net-zero carbon buildings—a GP medical center and an NHS children’s therapy center—set for completion in Q1 2025. Additionally, 12 capital asset enhancement projects worth £8.3 million are planned over the next two years, alongside 29 lease regears covering £2.8 million in rent roll. Assura continues to benefit from policy-driven support for community healthcare and private sector collaboration, including £900 million in GP funding, £100 million to upgrade GP estates, and a new NHS partnership with the independent sector. These align with Assura’s delivery of high-quality, sustainable facilities, cementing its market leadership. The portfolio now spans 608 properties with an annualized rent roll of £176.9 million. Financially, Assura reduced net debt by £46 million through disposal proceeds, maintaining a weighted average interest rate of 2.93% on fully fixed-rate, unsecured debt with an average maturity of 4.9 years. Over 40% of drawn debt extends beyond 2030 at historically low rates. Fitch reaffirmed Assura’s A- rating in August following its private hospital acquisition, further validating its robust position. With a dividend yield of 9.3%, Assura presents a compelling long-term investment opportunity, backed by stable trends and ongoing growth in the UK healthcare sector.

Fast Retailing (9983) +0.56%

Fast Retailing, the operator of Uniqlo, reported a 7.4% rise in first-quarter operating profit to 157.6 billion yen ($996.84 million), slightly below analyst forecasts of 160 billion yen. While strong sales in Japan boosted results, a sharp profit decline in China overshadowed overall performance, leading the company to scale back store openings and focus on revamping underperforming locations. Despite these challenges, Fast Retailing maintained its full-year profit forecast of 530 billion yen, targeting a fourth consecutive year of record earnings. The company plans to raise wages for full-time staff by up to 11% starting in March, alongside a 10% increase for new employees.

B&M European Value Retail S.A. (BME) -8.52%

Discount retailer B&M lowered its annual profit forecast after UK like-for-like sales fell 2.8% in the third quarter, as budget-conscious shoppers cut back during the Christmas season. Despite a recovery in December and positive sales trends in January, shares dropped 10%, hitting their lowest since November 2022. The company’s group revenue rose 2.8%, and it declared a special dividend of 15 pence per share. B&M now expects annual adjusted earnings between £620 million and £650 million, down from its previous upper estimate of £660 million, while continuing with plans to open new stores in the UK and France.

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