Leeds Group Shares Slump 20% On Trading News – What Next?

Trade Leeds Group Shares Your Capital Is At Risk
Tim Worstall
Updated: 17 Jan 2022

Key points:

  • Leeds Group is a remnant of the British textile trade which now works to distribute in Germany
  • Their half-year trading update shows significant performance deterioration
  • Will results improve once omicron is passed or not?
  • How to trade the Omicron variant

Leeds Group PLC (LON: LDSG) is one of those odd little remnants of Britain’s once world-conquering textiles trade. Leeds has been around for more than a century but changes in wage rates globally meant that domestic production ceased some time ago. The business now sources globally – obviously mostly in the Far East – and distributes textiles in Germany.

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The importance of this to us as traders is that there’s pretty much none of the business here in the UK. There’s the listing, yes, but that’s about it. Oh, and the results are in sterling. But other than that the Leeds Group business depends upon production conditions out east and the market in Germany. We need, thus, to be thinking about those two plus the effects of sterling. That is, do not try to project British domestic concerns onto the share performance, that’s not going to work.

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The effect of earning in non-sterling but reporting in sterling is going to be that as the British economy does better than the Leeds Group results will look worse. UK PLC does well – or the Bank of England raises interest rates, as it is doing – and sterling will rise. Any particular level of profit earned will thus look lower when converted into sterling. Leeds does report in sterling by the way. It also means that if sterling falls then Leeds’ results will look better.

The other issue is that reliance upon the German market. We have to put aside what we can see around us – that Omicron has been bad here in the UK but it’s rapidly passing – and tune ourselves into what’s happening in Germany. This has not been the same as here at all. The wave has been deeper, the lockdowns fiercer (although no national one in Germany) and that has materially affected Leeds Group’s business.

As they say in their trading update “Sales at Hemmers and KMR have consequently reduced by 19% and 33% respectively” those two companies being the main trading subsidiaries. This has – as we might expect – pushed Leeds into a loss for the half-year.

That explains the share price drop at Leeds Group. The question for us as traders becomes what happens next? As Leeds goes on to say there might be more variants and it’s not obvious when things will return to “normal”. On the other hand Leeds has cash at hand and doesn’t seem to be likely to run out of it. So, possibly a holding to see the recovery through might be a speculative position?

The real problem with Leeds Group at present is nothing to do with the company itself. It’s about covid and omicron and that’s uncertainty. We just don’t know, cannot know, we’ve got to wait and see. So any position in Leeds Group will be a speculative punt on how covid turns out and how soon it does.

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