FTSE up as UK inflation and ECB meeting awaited, stake-building in BT, AutoTrader puts profit drop in the rearview mirror

“The FTSE 100 started Thursday on the front foot, reclaiming the 7,100 mantle early on, but all the focus is on announcements coming later this afternoon from Washington and Frankfurt,” says AJ Bell Investment Director Russ Mould.

“US inflation figures could set the tone for the rest of the month, let alone the rest of the day when they are released later. A higher than expected number could put the markets back in panic mode over rising prices, even if the US Federal Reserve has done its best to convince investors the trajectory of interest rates is more closely tied to the employment market.

“The European Central Bank meets later with little expectation of any change in emphasis let alone policy but any sign that the ECB might seek to taper its support for the economy could also provoke a shock.”

BT

“It has been said for years that UK assets are cheap and 2021 is proving to be the year when investors finally put their money where their mouth is. Not only have we seen a spate of mergers and acquisitions, but investments of the strategic and activist kind are taking shape too.

BT has long traded on a low rating because the market has been concerned about the significant amount of money it has to spend on upgrading communications infrastructure, as well as competition in the broadband space and a large net debt position and a hefty pension deficit.

“Altice is an established name in the telecoms space and the purchase of a 12% holding in BT is a significant move, matching the stake already held by Deutsche Telekom.

“While Altice says there are no plans to make a bid at the moment, one must expect it to push for change within the business, given BT needs to find a solution to its very stretched balance sheet and how the market generally has a negative view of the company.

“Selling or finding a partner for the sports broadcasting arm is one option that’s already on that table, with a successful deal letting it focus on the core telephony business.

“BT’s Openreach division is also seen as a valuable part of the operation and that could be sold off.

“BT last year was rumoured to have attracted private equity interest with KKR touted as a potential bidder.”

Auto Trader

“The drop in full year profit announced at Auto Trader is firmly in the rearview mirror now as investors focus instead on the buoyant market conditions which are helping to drive a gear change in profitability in the current financial year.

“The profit drop resulted from the discounts and free advertising slots given to clients during the pandemic and this action may well have strengthened and deepened these relationships.

“This is crucial as Auto Trader’s profit growth is heavily reliant on upselling an increasing range of services to its car dealership customer base.

“The company’s dominant market share means it benefits from a network effect – it is the one most visited by prospective car buyers because it has the most listings. Car retailers are therefore compelled to use its products, reinforcing its position.

“The company is also working on new innovations like offering guaranteed part-exchange and allowing users to make reservations on vehicles.

“And the current production issues affecting the manufacture of new vehicles mean demand for used cars is very much in the fast lane.

“Limits on the availability of stock are only seen as being a modest speed bump for Auto Trader and CEO Nathan Coe, who took the wheel just as Covid hit, should now have a clearer path to take the business in the direction he wants.”

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.