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“The FTSE 100 traded 0.6% higher on Tuesday after yesterday’s weakness but the question for investors will be whether it can last,” says AJ Bell Investment Director Russ Mould.
“Several times in recent trading sessions the index has started out on a positive front before faltering amid a wave of negative headlines on the Covid-19 pandemic.
“New data underlined the lockdown-linked jobs crisis brewing in the UK and against this backdrop it is no surprise to see the more domestic-led FTSE 250 mid cap index lagging behind the more international-focused FTSE 100.
“A lot of focus will be on the mid-February update from the Government on lockdown restrictions with most ministers looking to downplay expectations of any meaningful easing of the curbs at that stage.
“Sentiment looks frothy across the pond where the release of results from heavyweights like Apple, Microsoft and Tesla seems to be exciting retail investors, with mounting concerns about a potential bubble which could burst, particularly if earnings disappoint.”
Rolls-Royce
“The latest restrictions on travel in various parts of the world have tripped up Rolls-Royce just as it was settling into its recovery plan.
“The negative impact on cash flow is unwelcome, however no-one should have expected it to travel a smooth path in early 2021 given the ongoing uncertainty on when the aviation sector will return to better health.
“Rolls-Royce is well advanced with its cost-cutting programme and liquidity is not currently a worry, which provides some comfort that it can weather the current storm.
“However, the market will be keeping a close eye on the state of the aviation industry and whether the second half of 2021 is realistic for a notable increase in the number of planes flying. That matters for Rolls-Royce as its real money is made from repair and maintenance work rather than the sale of engines, and that requires planes to be in the sky.
“The company is trying to raise £2 billion from disposals and has so far agreed to offload its nuclear instrumentation business for an undisclosed sum. Among the other assets up for sale are the TP Aero arm and its gas and diesel engines business, Bergen Engines.
“There will be increasing pressure on management to get deals struck, given the current backdrop may well be more fragile than the assumptions in last year’s restructuring plan.”
PZ Cussons
“The latest update from consumer goods firm PZ Cussons suggests recently appointed chief executive Jonathan Myers’ strategy is already starting to bear fruit.
“What Myers is attempting isn’t rocket science. He’s simply trying to clean up the mess left by several predecessors by focusing investment on key brands like Carex, the UK’s number one hand wash; Imperial Leather soap-to-shower gel; and tanning product St Tropez.
“The pandemic has boosted demand for hygiene products and cultural memory of the crisis means habits like stringent and regular handwashing are likely to remain legacies of Covid.
“Despite this boost, and the double-digit increase in first half revenue it helped deliver, it has not all been plain sailing. Like many businesses PZ Cussons has incurred coronavirus-linked costs.
“These extra costs and the uncertain environment help explain why the dividend is unchanged despite a material improvement in the balance sheet.
“A big challenge for the company in recent years has been the poor performance of its Nigerian business. It has regularly racked up losses thanks to the devaluation of the naira currency, in-country turmoil and a volatile supply chain.
“Myers clearly believes the prize in Nigeria and Africa more widely is still worth chasing but wants to ‘simplify’ the business and has completed stage one of a review of basics like its portfolio of products, route to market and organisational structure.
“The demographic and economic developments in Nigeria suggests there is significant long-term potential but the same could have been said at any point in the last five or 10 years and it has not be delivered on yet.”
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