Food still the saviour for Marks & Spencer, and Barratt Developments reveals slower sales rate

“The FTSE 100 continues to race back towards 7,000, a level that hasn’t been seen since February 2020 when the market was just beginning its big Covid-driven slump. Friday saw the blue-chip index advance a further 0.2% to 6,873, with gains seen across the rest of the European markets and in Asia following a very strong showing on Wall Street last night,” says Russ Mould, Investment Director at AJ Bell.

“Oil producers remain a key driver for the index, albeit helped in the latest session by housebuilders, data-driven companies Experian and Relx, and investment trust Scottish Mortgage thanks to its big stake in Tesla which keeps delivering very strong share price gains.

“The FTSE 100 is on track to deliver more than a 6% gain on the week, a much better performance that the first week of 2020 where the index went nowhere.

“This is the positive news investors need when so many people are stuck at home during the latest lockdown.”

Marks & Spencer

“Against such a difficult backdrop, Marks & Spencer’s third quarter performance is far from a disaster.

“Food sales were the saving grace with the Ocado joint venture being a lifeline for the group, giving it much-needed online delivery capability at a time when so many people want to order via their phones or laptops rather than risk going to crowded places during the pandemic. One can imagine a very different set of numbers had M&S not done that deal with Ocado.

“Clothing sales are still disappointing, and the business is clearly suffering from the change in society, whereby demand for smart dresses and sharp suits will have fallen off a cliff.

“At some point that will return, until which M&S must rely on demand for pyjamas and running kit to keep the tills ringing. Fortunately, it has a good reputation for quality products in both these areas, so management must avoid mistakes of the past and ensure there is adequate stock in all the popular sizes.

“This business seems to have been in turnaround mode for what feels like an eternity, yet the past year has seen some big steps to reshaping the group.’

Barratt Developments

“While demand for the homes built by Barratt Developments may have slowed from the pent-up flood seen last summer, it remains at a steady flow rather than a trickle. The increase in volume guidance unveiled today is also encouraging.

“The improvement in its position from a situation where the market was in deep freeze last spring is also marked by a big build in its levels of cash.

“Having more than £1 billion on its balance sheet enables Barratt to do two things which could help deliver shareholder value.

“In the here and now it means there is no reason not to resume dividends and accordingly that will happen alongside the company’s first-half results next month.

“The other longer-term benefit is that it can use the funds it has built up to invest in land at a moment in the cycle when valuations are depressed.

“This creates a pathway for growth backed by lower land acquisition costs and as a result, future developments could be more profitable depending on average selling prices.

“The future direction of house prices is one key uncertainty facing the business amid rising unemployment in the UK and the looming end of a stamp duty holiday at the end of March. It remains to be seen if the Government is minded to extend its support to the sector at this point.”

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.