Bad day for markets, while AO continues to soar

“Investors were greeted with a sea of red as global equity markets slumped on Thursday. It is becoming more apparent that the pandemic could still be raging well into 2021 and so economic prospects have become even more clouded,” says Russ Mould, Investment Director at AJ Bell.

“There were also negative comments from US Treasury Secretary Steven Mnuchin that a big stimulus deal was unlikely before next month’s Presidential election, in line with previous comments from Donald Trump.

“Ultimately investors are unnerved by what’s going on with Covid-19 and how that is negatively impacting jobs and the ability for many businesses to succeed.

“The FTSE 100 traded 2% lower at 5,815 with energy, consumer cyclicals and industrials the worst hit. Fears over tighter lockdown conditions once again put a big dent in the travel and leisure sector, with Whitbread, International Consolidated Airlines and InterContinental Hotels among the big FTSE fallers.

“The DAX index in Germany fell 2.2% with consumer and industrial stocks principally to blame. Pre-market indicative prices pointed to a 0.5% decline on the major US indices when North American markets open.”

AO

AO’s second quarter period was always going to be a tough one and the company has delivered what many people thought was unachievable.

“The first quarter benefitted from the first wave of lockdown, shifting people’s buying habits online. Being at home for a long period drove increased interest in the types of products sold by AO such as fridge-freezers and washing machines.

“The second quarter saw competitors reopen stores and consumers return to physical shops, therefore testing AO’s ability to sustain its positive sales momentum seen in the previous three months.

“The company was confident there had been a major shift in consumer behaviour and it now appears to be correct with proof of further sales growth, albeit not at the same pace as the first four months of its financial year when it last updated on trading.

“Anyone working or furloughed at home only has to look out of their window to see delivery vans going up and down the road all day long. Years ago buying a new cooker would have involved a visit to a showroom and lots of chit chat. Now it’s a simple check of the reviews and an order online in minutes.

“AO places a lot of emphasis on providing good customer service and this reputation is now paying dividends with it being the retailer of choice for an increasing pool of people.

“A year ago, few people would have bet on AO being one of the big retail success stories in 2020 but the lucky few that did back this horse would now be minted. Its share price is now up 300% in the past 12 months.

“Ongoing lockdown restrictions provide the tailwind that AO needs as it continues its path towards making a profit. And herein lies a big issue – everything to date has been about driving sales growth but the business hasn’t really made any proper money. That could soon change.

“Results for the year to 31 March 2020 saw a tiny pre-tax profit of £1.5 million which was the first proper earnings breakthrough for the business. Analysts now expect pre-tax profit to start motoring ahead, with £36.6 million forecast in the current financial year and £43.6 million in 2022.”

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


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.


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