Pearson, ASOS and Housebuilders: Barratt Developments / Crest Nicholson

“Following a very strong show on Wall Street last night, markets across Europe and Asia did their best to push forward on Wednesday. The FTSE 100 nudged up 0.1% in early trading to 7,065 with pharmaceuticals, tech and financials in fashion,” says Russ Mould, Investment Director at AJ Bell.

Pearson

“Is the market now warming to education publishing company Pearson, the business many people used to love to hate? Full year results are getting a boost from one-off tax benefits and most of its business is doing well. Chief executive John Fallon also says the group is on track to return to underlying profit growth.

“For several years the market has given Pearson a D-minus on its homework as financial results painted a picture of a struggling company. It now looks like the business is out of the teacher’s bad books and is finding its way again after a period of restructuring.

“Pearson has faced challenges with its higher education business as many students shun textbooks in favour of free online and second-hand resources. It has tried to simplify its business and put some operations up for sale.

“This hard work looks to be paying off, albeit slowly. However, you must appreciate that Pearson’s earnings can be heavily weighted to the fourth quarter in terms of revenue and profit. Today’s nine month trading statement certainly gives reason to be optimistic but it is too early to get carried away.”

ASOS

“Shares in the online fashion retailer have rocketed upwards as full year results meet expectations. Investors have clearly been nervous about the retail sector this year, given profit warnings from the likes of Quiz, Superdry, Moss Bros, Footasylum and more in recent months. That’s also led to weakness in ASOS’s shares in the run-up to today’s results.

“The fact that ASOS has not only met financial expectations but also maintained future earnings guidance is good enough to win back the market’s favour.

“Much of the ASOS story has been focused on rapid international growth. Yet today’s results provide a welcome reminder that its UK operations are also firing on all cylinders with 23% sales growth, an impressive result when considering the fragile market conditions.

“Fundamentally ASOS does retail very well. It has a broad range of products at reasonable prices, it delivers them in an efficient manner and has a free return service. If you get these basics right, it raises the chance of customers coming back for more.

“ASOS’s key performance indicators are clear evidence of success. The number of active customers across the group is up 19%, the average basket size is up 1% and the order frequency is up 7%.

“The market loves to slam high growth businesses on the slightest hiccup and ASOS has certainly had to deal with critics over the years regarding the pace of growth, investment spending plans and profit margins.

“Yet if you look back over its relatively short 18-year life, it is very clear that ASOS has been an outstanding business success story and a company which is flying the flag for Britain’s entrepreneurial culture.”

Housebuilders: Barratt Developments / Crest Nicholson

“At first glance the two updates from the housebuilding sector this morning reflect materially contrasting fortunes.

“Barratt Developments says it has enjoyed a ‘good’ start to the year while Crest Nicholson issues yet another profit warning amid dwindling margins and softening demand for its high-end homes in London and the South East.

“However, scratch the surface of Barratt’s announcement and there are one or two worrying signs. In the first 15 weeks of its current financial year, reservations per active outlet per average week, a key metric for the industry, slipped to 0.72 from 0.74 a year ago and the number of new developments is down from 62 to 53.

“Crest’s response to its current predicament suggests the cycle has turned for its segment of the market. Growth ambitions are being dialled back and the group is prioritising cash flow and dividends.”

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