Housebuilders and estate agents, Sophos and Superdry

“The FTSE 100 advanced 0.3% to 7,598 in early trading on Thursday, helped by gains in the mining, construction and transport sectors,” says Russ Mould, investment director at AJ Bell.

Housebuilders and estate agents: Persimmon, Bovis Homes, Purplebricks

“Continuing growth for housebuilders Persimmon and Bovis Homes helps reassure a sceptical market on the prospects for the sector but there are some more worrying signs beyond the headline advances in revenue and profit.

“It is clear from both statements that the housebuilders are no longer able to rely on house price growth to drive their returns. Although the number is affected by a larger number of affordable home completions, Bovis’ average selling price is down from £277,400 to £261,000 year-on-year in the first half.

“Persimmon’s own average selling price creeps up 1.2%. The question remains on how profitability will fare when supportive factors like low interest rates and the Help to Buy scheme are removed.

“Persimmon, which has attracted criticism for its levels of executive pay, also revealed that chief executive Jeff Fairburn is paid 3,000 times more than its lowest paid worker – a revelation which could keep the excessive pay issue in the spotlight for the company.

“Elsewhere in the property space, investors appear to be losing some patience with online estate agent Purplebricks as despite rising revenue its full year pre-tax loss widens from £6.05m to £26.1m.

“Expanding into new markets in the US and Canada, the business is investing for future growth but eventually shareholders will want to see this translate into profit and cash flow.”

Sophos

“One would have thought cyber security is a booming industry given a succession of high profile cyber attacks raising awareness of the issue with corporates and consumers. So why is Sophos failing to achieving expected growth levels?

“The business takes another hit on the stock market today as first quarter billings growth of 6% is considerably less than market expectations for mid-teens growth.

“This isn’t the first time that Sophos has failed to deliver. The business’s third quarter update in February also saw billings behind expectations.

“It looks like a classic case of people thinking all companies serving hot sectors are guaranteed to see sustained growth at high levels.

“At the end of the day, cyber security is just like many other markets – highly competitive and customers are often reluctant to pay for services when they can get some level for free.

“Sophos needs to convince its customers that it is worth paying for additional defensive solutions, in order to cross sell services and encourage existing clients to renew contracts. There is certainly evidence that it has been successful with this in the past, it’s just the pace of growth which is likely to remain uncertain for now.”

Superdry

“The British retailer looks to have stabilised following a shock in May where it reported a slowdown in sales growth. At the time, it also flagged that margins were falling due in part to a decision to cut prices to lower the amount of stock being held.

“There will be some relief that its 2019 financial year revenue and margin guidance hasn’t been downgraded from previous guidance.

“It continues to be a very difficult market for retailers but Superdry is managing to navigate the bumps in the road and is still able to grow revenue and underlying profit, plus generate enough cash to warrant growing the dividend and paying an extra special dividend on top to its shareholders.

“Its decision to reduce guidance for space growth looks sensible in light of the market conditions, plus it also seems wise to tighten focus on wholesale and e-commerce channels as these require less capital spending.”

These articles are for information purposes only and are not a personal recommendation or advice.