Retail sales up ahead of Covid Christmas as FTSE makes modest gains, and Sage hit by falling margins

“The FTSE 100 made modest gains early on Friday and was on course to end the week as a whole in positive territory, albeit achieving nothing like the vaccine-fuelled rise seen last week,” says AJ Bell Investment Director Russ Mould.

“Retail sales increased for the sixth consecutive month in October according to official data, with the release coming ahead of what will be a uniquely challenging festive period for the sector.

“Shops face truncated trading thanks to covid restrictions and the task of selling a much larger proportion of goods online.

“You need more than just a functioning website to handle internet-based orders; you also need warehouse space, which is at a premium, and the right systems and staff in place to ensure orders are processed accurately and efficiently.

“The latest dire figures on the UK’s public finances, even if they were slightly less dire than expected, will still ratchet up the pressure ahead of Chancellor Rishi Sunak’s spending review next week.

“Sterling remains volatile amid ongoing uncertainty over the fate of any Brexit deal and this, along with resolution of the disputed election result in the US (with the hopeful coda of news on a stimulus package) and any fresh vaccine developments, are likely to be the factors which dominate the market’s attention into the New Year.

“Gold prices continue to hover below $1,900 per ounce, while oil prices remain above $40 per barrel for now. The next developments in the coronavirus crisis could help determine the future direction of both commodities.”

Sage

“If you need technology to help manage your accounts, there is a high chance that Sage will be one of the first brands you’ll associate with this space. This strength has served it well over the years, yet life is getting a lot harder as competition is now fierce and Sage needs to transition from an old economy firm to one that embraces cloud computing.

“Declining organic operating profit margins have cast a shadow over its latest results and the guidance is for further margin contraction as it invests more in the business.

“The impact of covid has accelerated the strategy to move away from licence sales and low margin professional services implementations.

“As a tech business, there is an expectation for rapid levels of growth and feels like Sage is struggling to deliver them. Revenue growth in recent years has been very pedestrian and the latest results show that sales growth has now gone into reverse.

“Sage is making progress towards having a greater level of recurring revenue with software subscription penetration now at 65% versus 56% a year ago. Strong levels of cash generation are also very encouraging.

“Despite these positive attributes, it still feels like Sage lacks the excitement of other tech stocks. It is one of the UK’s largest listed tech businesses, but investors are certainly not flocking to own the shares in the way they are with many of the US players.”

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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