ASOS blames the rain for trading setback, Norton and Avast merger proposal, and strong Darktrace trading shows cyber security sector is hot

“If the FTSE 100 was a swimmer asked to tread water for as long as possible, it would score a gold medal. The market is stubbornly refusing to make waves and has gone nowhere since May,” says Danni Hewson, Financial Analyst at AJ Bell.

“Today’s session is no better, with the UK stock index slipping 0.3% to 7,070 with oil and pharma stocks acting as a drag.

“We’re now in the second quarter earnings season but any positive messages from large corporates do not appear to be improving investor confidence. That’s not a good sign.

“China’s second quarter GDP figures were slightly better than expected, but there is still a sense of unease about the country’s economic outlook. A similar feeling is spreading to other countries and suggesting that the post-Covid rebound may find it harder to keep going at a strong pace.

“This might warrant ongoing support from central banks and governments, which in theory is positive for markets, but investor sentiment seems to be waning. Expectations have been so high for this massive economic surge, but a more lacklustre outlook could impact investors’ willingness to keep putting money into riskier assets.”

ASOS

“The retail sector seems to be following one of two paths. Trading has either remained strong following the initial consumer spending splurge post-lockdown, as witnessed by Dixons and Dunelm; or it has started to lose momentum. Sadly, ASOS falls into the latter camp.

“Blaming the weather is a poor excuse as June didn’t exactly see biblical levels of rain – and the month is often a wet one, so this year’s downpours were not out of the ordinary.

“Plenty of people were still able to get out and enjoy the Euro football championships, so ASOS is clutching at straws with its excuses. In fact, if it was digging around for excuses, it missed a trick by not blaming the Euros for distracting shoppers.

“Perhaps more credible is attributing some of the trading weakness to Covid. It does feel as the pandemic is rearing its ugly head again, with hundreds of thousands of school children and workers isolating at home.

“People’s social lives continue to be disrupted; for example, music festivals scheduled for after Boris Johnson’s Freedom Day continue to be cancelled as organisers feel there is too much uncertainty to hold a big event. If plans to meet up with friends and family are suddenly scrapped, is there any point in splashing out on new outfits?

“Well, that didn’t stop people during the height of the pandemic, eager to show off their new looks on social media, so perhaps ASOS has temporarily lost its magic touch in terms of selling the clothes people want.”

Darktrace/Avast

“Is the UK’s budding cyber security space operating a one-in, one-out policy? No sooner had Darktrace swelled the ranks of London-listed firms fighting the hackers than Avast is subject to a multi-billion pound merger proposal from fellow anti-virus play NortonLifeLock.

“Darktrace’s latest update is indicative of the surging demand in this area as digital criminals get more sophisticated.

“The scale of revenue and customer growth revealed by the statement is eye-catching and suggests the machine learning and artificial intelligence Darktrace offers to its customers is proving increasingly popular.

“In part because of some nervousness about its association with tech entrepreneur Mike Lynch, fighting extradition to the US on fraud charges, the Darktrace IPO was pitched pretty low back in April but the shares have soared like an eagle in the interim.

“Avast’s shares have been on a broadly upwards but still bumpy path since its own listing in 2018. Recent weakness in the share price may have alerted its rival Norton to the possibility of a tie-up and its approach continues the current wave of foreign M&A interest in British firms.

“While news of the bid will generate excitement in the short term, the UK’s already very modest-sized technology sector can ill-afford to lose one of its leading constituents.

“This reveals the wider truth that the current surge in takeover activity could have a materially negative impact on the depth, breadth and diversity of the UK stock market.

“Whether the competition authorities, which have already gone after Norton over its auto-renewal practices might look at any combination between Norton and Avast, and the impact it has on consumers, remains to be seen.”

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