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“After yesterday’s spectacular session for UK stocks, it was refreshing to see further gains on Thursday. The FTSE 100 nudged up 0.6% to 7,632 thanks to strength among miners, and investors continue to shop for bargains among the housebuilders. However, market sentiment can turn quickly and investors have a habit of finding things to worry about,” says Danni Hewson, Head of Financial Analysis at AJ Bell.
“The corporate reporting season went into overdrive with updates from a multitude of players large and small across the UK, mainland Europe and the US. So far, there have been mixed messages, particularly from the tech sector, and pre-market indicative prices suggest the US market will open in the red later today.
“TSMC reported its first decline in profit in four years as demand for consumer electronics weakened. You can see the effects in one of the big European names as shares in home appliances giant Electrolux sank 14% after swinging to a second quarter loss thanks to a shift in customer habits.
“High interest rates combined with persistent inflation has forced many consumers to pay closer attention to their finances and that means looking for cheaper items when they upgrade or replace appliances in the home. Concerns about the property market also have a direct read-across to Electrolux as a reduction in construction activity in new-build homes means lower demand for built-in kitchens.
“Cushions-to-picture frames seller Dunelm has been doing okay, but management is right to flag ongoing uncertainty with regards to the consumer outlook. Its focus on good value for money has paid off in the cost-of-living crisis but no company can be complacent when inflation remains significantly above the Bank of England’s 2% target and the sharp rise in interest rates presents ongoing challenges to the consumer.”
Netflix
“The good news for Netflix is its crackdown on password sharing has had the desired effect. Rather than abandoning the streaming platform, people have been joining in numbers. This is reflected in better-than-expected quarterly subscriber numbers. This suggests its content offering is still sufficiently appealing to draw in a large audience.
“The bad news is the company reported softer revenue. Netflix had effectively told investors to focus on how much money the business was generating rather than subscriber numbers by no longer guiding on the latter.
“In the circumstances Netflix can hardly complain if it is being judged on this measure and being seen as having come up short.
“When it was in its expansion phase Netflix was all about growing the amount of people using the platform. Now it needs to demonstrate it can move towards more significant levels of revenue, profit and cash flow.”
International Distributions Services
“Royal Mail owner International Distributions Services is at a critical juncture and it feels telling the company has appointed the head of its overseas delivery operation GLS to lead the broader group.
“Having settled the industrial action which had been dogging Royal Mail’s every move, incoming CEO Martin Seidenberg has some big decisions to make. With strikes no longer clouding the outlook, would now be a good time to consider splitting the two businesses?
“It seems likely GLS could attract a higher market valuation as an individual business, its attractions no longer obscured by the legacy issues facing Royal Mail. The latter include struggles in pushing through efficiency improvements, large pension liabilities and a fractious relationship with its workforce.
“First quarter trading reflects the divergent fortunes of the two businesses and while Seidenberg made the right noises on realising the full potential of Royal Mail, his background may make him more open to any clamour for a permanent break between the two.”
Tesla
“It seems Tesla and Elon Musk are not done with price cuts. For now, the company’s industry-leading margins are holding up better than feared, however guidance for further reductions and the prospect of factory downtime affecting production has led a share price which has been motoring all year to splutter a little.
“Tesla is still in an enviable position in the electric vehicle market which is why so many investors are along for the journey even if there may be some bumps in the road in the short term.”
Easyjet
“EasyJet is riding high from the rebound in travel demand. It has seen growth in the number of passengers, more bums on seats per plane, more revenue from tickets, fees and add-on items, and a huge jump in profit from its holidays arm.
“However, the outlook is far from rosy. It is facing a summer of disruption from strikes by airport and air traffic control workers, not to mention the prospect of soaring temperatures threatening to put people off travelling to parts of Europe.
“The company is cognisant of the risks but doesn’t seem too worried. Strikes have become part and parcel of the job in the aviation industry and consumers still seem happy to splash the cash on holidays despite the ongoing cost-of-living crisis.
“In this situation, management will press on with longer-term growth plans as navigating pockets of turbulence comes with the job.”
These articles are for information purposes only and are not a personal recommendation or advice.
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