Associated British Foods reaps benefits of conglomerate structure and Crest Nicholson enjoys a bumper period

“It’s a firm risk-on mood for investors as equities rise across Europe and Asia,” says Russ Mould, Investment Director at AJ Bell. “The FTSE 100 jumped 1.5% to 5,737, led by miners, oil producers, financials and consumer cyclicals. HSBC, Rio Tinto and BP were the biggest contributors in terms of index points.

“Investors seem to be pricing in a victory by Joe Biden in the US Presidential Election and anticipation is high that he will have a more favourable trade policy with China and the EU. This factor together with a weaker dollar favour the commodities space.

“Only three stocks in the FTSE 100 were in negative territory – Associated British Foods on a decision not to restart its dividend and a cautious near-term view; Just Eat Takeaway giving up some of yesterday’s gains when investors were looking for potential lockdown winners; and telecoms group BT which was only down by a very small amount.

“Hong Kong’s Hang Seng index soared by 2%, following the same pattern as the FTSE 100 with commodities and financials leading the way.

“Brent Crude oil futures jumped by nearly 5% to $39.66, clawing back some of the recent losses.

“The pound strengthened 0.3% to $1.2961 against the US dollar, helping to give some support to the FTSE 250 index which has a strong focus on UK domestic companies. The index advanced 1.4% to 17,426, led by housebuilder Crest Nicholson which soared 17.5% after saying earnings would be significantly ahead of forecasts.”

Associated British Foods

“Associated British Foods is the latest in a growing trend for companies to announce better than expected results, perhaps showing that management teams were too pessimistic coming out of the first lockdown. Sadly, life has changed once again with ABF’s Primark stores being affected by new lockdown restrictions in various parts of the world, so its management had every right to be cautious earlier this year.

“The company’s results are somewhat irrelevant given the new restrictive backdrop as the figures are backward-looking. It is now having to play a waiting game, hoping that the current lockdown conditions will ease by early December so it can shift all the Christmas-themed products currently sitting on the shelves.

“Retailers are highly dependent on the last few months of the year to sell products and those like Primark with no internet presence are going to be left out in the cold. It all comes down to the ability to survive a bleak winter and ABF seems confident it has the financial resources to come out the other side intact.

“Over the years people have questioned why ABF has continued to operate a conglomerate structure, running a clothing business alongside food and agricultural interests. The diversification benefits are now coming into play with ABF in a much better position than many of its clothing peers because it has other business activities to fall back on.

“ABF is taking a long-term view and continuing with expansion plans across the business, while at the same time being prudent with its financial resources and not paying a dividend.

“We might look back at the current lockdown and realise it was only a very short-term disruption and so companies able to crack on now and keep planning for future growth are likely to reap the benefits down the line. However, no-one knows how long the lockdown will last and so ABF is right to remain cautious about near-term expectations for trading.”

Crest Nicholson

“The latest update from housebuilder Crest Nicholson suggests that in the commuter belt, conditions for selling homes are very healthy.

“The company’s footprint is largest in the south of England and particularly in the towns and suburbs around London. The strength of its recent trading could reflect people moving out of central London in pursuit of more spacious accommodation and a decent garden.

“The momentum, with sales actually running ahead of pre-covid levels, also reflects the pent-up demand from the first UK lockdown as well as the impact of the current stamp duty holiday.

“While lockdown 2.0 won’t involve shutting down the construction sector, the housing market could still be hurt by the growing levels of joblessness as covid-19 and its associated restrictions leave scars on the economy.

“Crest does have a strong order book – providing some visibility on medium-term demand – and there is hope that the Government will do what it can to support the property market.

“At least in preparing for the worst, the company has ended up in a strong balance sheet position – strong enough that it becomes the latest name in the sector to announce a return to the dividend list.”

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