AO World and Informa

“The FTSE 100 slipped 0.6% in early trading on Friday to 7,096, rounding off a frustrating week for investors.

“Just as it looked like the US midterm election results would give a boost to markets around the world, momentum has been quickly lost.

“A falling oil price has troubled investors and shifted their focus back to concerns about a slowdown in global economic growth,” says Russ Mould, investment director at AJ Bell.

AO World

“An acquisition announced by online consumer electrical retailer AO World today can’t distract from a weak trading update.

“Set up to disrupt the major domestic appliances market – such as dishwashers, washing machines, fridge freezers and so on – the company is finding the going tough in its two core markets of the UK and Germany where growth is slowing.

“Traditional retailers in this space have upped their game when it comes to having an online presence and while AO World is allocating marketing spend to boost brand awareness it still likely lags the likes of Currys PC World.

“The decision to buy online mobile phone retailer MPD is a brave move give the competitive nature of this market.

“Strategically, it will help AO to expand its reach across the broader electrical market. Yet it may not provide an immediate solution to the key problem with the business – i.e. when will it actually make sustainable profits?

“AO has developed a good reputation for strong customer service and its website has a wide range of goods. Unfortunately sales haven’t been strong enough to offset the cost of doing business, so it still isn’t making money.

“It reported a £7 million pre-tax loss in the year to March 2017, expanding to a £13.5 million pre-tax loss in the following year. The consensus forecast among analysts is for AO to continue being loss-making until the year ending March 2020. At that point it is expected to squeeze out a mere £2.45 million pre-tax profit.”

Informa

“Lesser known FTSE 100 media outfit Informa helped arrest a decline in its share price with trading update which showed the company on track to hit full year expectations.

“The weak performance of the shares in recent months suggested investors may have been anticipating a profit warning. 

“The company is focused on events, where its acquisition of UBM earlier this year substantially increased its scale, professional information services and academic publishing.

“The latter is an area where rival Pearson has really struggled, with students buying fewer big expensive academic textbooks.

“Informa has got ahead of some of the changes in this market, investing in marketing to support subscriptions and in areas like e-books while also developing an open access platform. Open access involves giving away research for free.

“Most observers felt the £3.9 billion paid for UBM was somewhat over the odds but the integration plan is progressing on schedule and the company may have the last laugh if the deal ends up delivering a leading position in business-to-business exhibitions as planned.

“Events typically generate lots of cash and strong visibility on revenue with the capacity to take existing successful events into new territories to generate growth.”

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