FTSE 100: Tesco holds steady, Phoenix soars high, and Diageo distilled

The FTSE 100 has fallen by 2.8% over the past month, with the UK’s premier index impacted on multiple fronts. With circa 80% of FTSE 100 corporate income derived from overseas, the ongoing impact of the Israel-Hamas war is of course having a negative effect.

But domestically, Office for National Statistics GDP data shows that the economy saw no growth in the three months to September — perhaps a harbinger of dreaded stagflation. Across the pond, Moody’s is the latest credit agency to cut its outlook on the US government from stable to negative, and US economic weakness could be another danger for FTSE 100 investors.

However, while the FTSE 100 itself may itself be down, individual companies are moving based on their earnings. BAE Systems may benefit from the improved outlook for defence stocks; while the housing market slump has seen former constituent Persimmon ejected from the index.

And the following three FTSE 100 bellwethers show this divergence. Of course, past performance is not an indicator of future returns.

Tesco shares hold steady

FTSE 100 investors often look to the index for reliable dividend companies — and while its 3.9% yield is nowhere near index-topping, Tesco (LON: TSCO) shares epitomize reliability in the eyes of many investors.

The grocer consistently retains more than a quarter of the UK’s grocery market share, and in recent interim results CEO Ken Murphy enthused that ‘Tesco is now consistently the cheapest full-line grocer...customers are responding well, contributing to market share gains in store and online. We’re seeing the results at both ends of the basket.’

It’s worth noting that food inflation is continuing to fall, but even so, like-for-like group retail sales rose by 7.8% across the half, with both ‘volume and sales mix trends ahead of expectations.’ Accordingly, retail adjusted operating profit rose by 13.5% at constant currency rates to £1.4 billion, while net debt fell by a sizeable £605 million.

Phoenix shares enjoy new lease of life

Phoenix Group (LON: PHNX) currently boasts an inflation-beating double-digit dividend yield — and while the insurance titan operates in a hypercompetitive sector, insurance is one of the most defensive FTSE 100 sectors due to its inelasticity of demand. In other words, customers will often continue to pay their premiums regardless of the wider macroeconomy.

Shares in the insurer rose by more than 5% today after announcing an upgrade to its near-term cash generation targets on completion of its Part VII transfer, merging Standard Life and Phoenix Life.

The company expects this merger to create a ‘material one-off’ upgrade to its 2023 cash generation target, from £1.3 billion to £1.4 billion up to a new circa £1.8 billion. Phoenix’s three-year cash generation target has now been upped from £4.1 billion to £4.5 billion across 2023 to 2025, creating ‘further balance sheet optionality.’

Bringing £200 billion of assets into a single entity, CEO Andy Briggs notes that ‘this reaffirms Phoenix Group's position as the UK's leader at delivering cost and capital synergies and generating value for customers and shareholders.’

Clearly, the FTSE 100 company’s place as one of the most popular dividend stocks on the index remains assured — though high yields can create value traps.

Diageo shares down

Diageo (LON: DGE) shares have fallen by circa 10% after issuing a profit warning due to ‘materially weaker’ performance in Latin America and the Caribbean. This downgrade came less than two months after the alcohol giant told investors that it expected to see increased sales growth in the first half of its financial year — and perhaps serves as a warning to other FTSE 100 companies that future expectations and materialised reality are not identical twins.

Diageo now expects ‘organic operating profit growth for the first half of fiscal 2024 to decline compared with the first half of fiscal 2023.’ It’s worth noting that alcohol spending is typically seen as relatively defensive in the FTSE 100 market — and customers may simply be trading down to less premium products.

And once consumers trade down, it can be hard to convince them to upgrade in the future.