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“After seemingly succumbing to the January blues, the FTSE 100 is feeling a lot brighter on Tuesday chalking up solid gains as investors look ahead to comments from Treasury Secretary nominee Janet Yellen on the US stimulus plan,” says AJ Bell Investment Director Russ Mould.
“Adding to the positive mood, Asian stocks were mostly higher overnight and today’s resumption of trading on Wall Street, after closing for Martin Luther King Day yesterday, should also help give the FTSE some direction as fourth quarter earnings statements start to feed through across the Atlantic.
“These earnings reports will help provide a bit of clarity on how the corporate world is coping with the latest wave of coronavirus as the markets continue to weigh the rising infection rates globally with the pace of vaccine rollouts.”
Premier Foods
“Talk about a comeback – Premier Foods has been in the sweetest of spots during the pandemic and it continues to feast on consumer demand for tasty treats and essential home cooking products.
“It has enjoyed considerable sales growth momentum and the days of it being called a zombie company saddled with high levels of debt and no money to reinvest in its business are now long gone.
“People stuck at home have embraced the challenge of home baking instead of going out to eat, and so Premier Foods has enjoyed good sales of cooking sauces and gravy. And for those who don’t want to cook everything themselves, the company has been able to capitalise on strong demand for cakes.
“The latest trading update would suggest that spending money on marketing well-known brands can be a good way to drive sales. But we’re not told whether there is a good return on this investment.
“As a business, it is ticking all the right boxes. Cash generation is strong, so it is rapidly paying down debt and able to spend more money on marketing and product innovation which is crucial to help build scale in the business. Overseas operations are seeing progress and Brexit hasn’t caused any supply chain issues to date.
“But what happens when lockdown comes to an end permanently and vaccines pave the way to a reopening of society? There will be a lot of pent-up demand for people to eat out again, and for the return of ‘food on the go’ to satisfy people’s hunger.
“Premier Foods will be hoping that some of the home cooking habits will remains for a lifetime, yet it is hard to see a permanent structural shift in how people source meals.
“By spending money on marketing now, all Premier Foods can do is make its products front of mind when consumers shop so post-lockdown people still recall its brands when they are deciding whether to cook themselves or go for the ready-meal option which was so popular before Covid-19 struck.”
AO World
“Today’s update from web-based white goods seller AO World is a reminder that while online retailers are better placed during the pandemic, there are still material costs to bear.
“Given electrical goods retailers with physical stores have been closed for long periods it is no surprise that AO World has enjoyed strong trading momentum.
“Electricals have arguably never been more important to us, particularly with a shift to working from home, kids being home schooled and people spending more time indoors generally.
“Despite the unprecedented sales momentum it sounds like it will be a different story in terms of profitability as AO counts the cost of ramping up warehousing and delivery capacity as well as handling returns, all the while remaining Covid compliant.
“A key question for investors to weigh is the extent to which these costs and benefits are a one-off. Will the structural changes accelerated by the pandemic continue to support growing market share for the business? Or will shoppers decide they’ll ‘AO let’s go’ somewhere else once we have returned to a measure of a normality?
“And with the investment in its infrastructure and processes made, will costs start to come down again?
“AO will certainly find the current financial year a hard act to follow in terms of sales growth and there will be plenty of attention on its trading through the course of 2021 to see if the position carved out through the coronavirus crisis can be sustained.”
These articles are for information purposes only and are not a personal recommendation or advice.