Unilever shines and Moneysupermarket update compares poorly

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“The chances of a stimulus plan being approved in the US ahead of the Presidential election looks increasingly slim and this is putting pressure on equity markets.

“A fall in the US was matched in Asia, which was also hit by a downgrade from the International Monetary Fund, and Europe has also opened in the red,” says AJ Bell Investment Director Russ Mould.

“The FTSE 100 is now trading around its lowest levels since the spring amid a second wave of coronavirus, and all the economic hardship it could involve, and political uncertainty on both sides of the Atlantic.

“British Airways owner International Consolidated Airlines continued to descend as it announced a €1.3 billion loss, revealed big cuts to capacity and admitted it will likely miss a target of breaking even on a free cash flow basis.

“West End property investor Shaftesbury was another big loser in London, down by double-digits as it was forced into a discounted cash call.”

Unilever

“Were it not for unfavourable foreign exchange rates weighing on its numbers, Unilever’s third quarter results would have been as shiny as the surfaces treated by its cleaning products.

“Like Reckitt Benckiser and other consumer goods companies reporting in recent days, Unilever has seen strong sales growth in home care products beyond the initial lockdown phase earlier this year.

“It would suggest households and businesses are taking hygiene much more seriously than before, which is music to the ears of companies selling disinfectants, bleach and other cleaning items.

“While underlying prices for home care products have fallen in the period, it has managed to sell significantly greater volumes. However, there is still pressure on the business to stay alert to competition and to ensure it isn’t left behind by rivals slashing their prices further just to shift goods.

“Unilever has this year faced a big challenge with its food and drink products, but the latest update shows that changing market dynamics have resulted in a positive outcome.

“There were fears that a lockdown-induced reduction in trade for cafes, restaurants and other eating establishments would have hurt Unilever’s sales, yet it has more than made up for this weakness with very strong in-home sales. It seems the nation has taken to eating lots of mayonnaise and ice cream while stuck indoors.

“A year ago, Unilever was faced with the problem of how to accelerate growth. Fortunately, coronavirus has created a backdrop which plays to its strengths.

“The next challenge for the company is what to do if a vaccine is successfully developed. Unilever will have to keep banging the drum that it pays to keep your house and yourself clean, otherwise it could see sales trends revert to pre-covid levels and growth concerns back on the agenda.”

Moneysupermarket

“As an entirely online business Moneysupermarket should in theory be resilient to covid-19 but the impact the pandemic is having on its end markets is translating into a weaker outlook for the comparison site.

“People’s motivation for switching is to make significant savings and if they are not able to do so for a variety of reasons then this will inevitably have a negative impact on demand for Moneysupermarket’s services.

“This was particularly evident in the energy space where an increase in wholesale prices and a reduction in the energy price cap meant there was less to be gained for consumers by switching provider.

“This is the part of today’s announcement which probably took the market by surprise and has driven earnings downgrades.

“While appetite for lending products is unsurprisingly high at a time of economic stress, a lack of availability and the tighter criteria applied by lenders means revenue in this area is falling sharply.

“The travel side is inevitably something of a write off, while the home and life insurance bits of the group are also struggling. Even motor, which is a relatively bright spot, is starting to sputter as growth slows.

“Moneysupermarket operates in a highly competitive market with limited barriers to entry, though the company does compare favourably to its rivals thanks to its brand strength, investment in technology including in areas like automated switching, and a strong balance sheet. This might enable it to come out of the crisis in a relatively stronger position.”

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