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“The more positive market sentiment seen at the start of the week extended into Tuesday, supported by waning fears about the Omicron variant and robust Chinese trade data,” says AJ Bell Investment Director Russ Mould.
“Suggestions the new Covid strain might only trigger mild symptoms are prompting relief among investors and helping travel stocks take off – however given the typical gap between infection and hospitalisation with coronavirus it remains early days in our understanding of just how virulent Omicron is.
“China import data hinted at a domestic recovery and export data, while lower, was still notably better than expected. The net result being that the FTSE 100 index is now back at the levels it traded at before the Omicron-driven sell-off.
“The UK housing market continues to break more records than Usain Bolt as prices increased at their fastest rate in 15 years. However, there must now be some concern about what might happen when the music stops given the speed of the market’s recovery from its deep freeze in the initial stages of the pandemic.
“There were big gains for US-focused plumbing products outfit Ferguson. The business is not only enjoying strong demand but is also doing a good job of mitigating cost inflation, allowing it to boost profit expectations. The company will also have expectations of work coming down the pipe from the recently agreed US infrastructure package.
“Investors reacted positively to British American Tobacco’s latest trading update where the most important takeaway was the number of people switching to its vaping products – which are finally expected to make a contribution to group profit this year.
“It’s just a start but, given the regulatory, investor and political pressure associated with the sale of traditional cigarettes it is a modest step in the right direction for the business.”
Ashtead
“Ashtead continues to be a beast of a business, generating significant returns from renting out construction-related equipment. For years it has talked about a structural shift in the market from companies and individuals preferring to rent equipment rather than own it outright, and that trend is still in motion.
“It has successfully reinvested large chunks of its profit back into the business, buying more equipment to amplify future returns. Shareholders have also been rewarded with a steady stream of dividends.
“In a perfect world, each year it would own more equipment and it would charge even more money to rent them out. That’s not always the case as it does cater for a cyclical market, but on average it is managing to live that dream.
“The latest results show that rental revenue growth has been driven by higher volumes of equipment out on loan. However, rates have also been going up, and Ashtead says it is now seeing a better rate environment than seen for several years.
“Its business isn’t simply about providing cranes and cherry pickers to build new buildings. It also caters to other markets such as repair work from hurricanes, which brought in $60 million to $65 million in revenue in the second quarter alone.
“In the UK it has been helping to build regional Covid testing centres, providing tens of thousands of traffic cones, many miles of fencing and oodles of lights and generators.
“A lot of work has gone into reducing operating costs and cutting out unnecessary spending as even the most successful businesses face inflationary pressures. Ashtead’s main ones relate to labour, transportation and fuel costs.
“Joe Biden’s $1.2 trillion infrastructure bill should provide a positive backdrop for Ashtead in the US, which is its main operating region. Yet Covid still presents a challenge in 2022.
“Any prolonged setbacks to economic activity could have a negative knock-on effect to construction activity, causing project delays. This risk will keep Ashtead on its toes and ensure that it runs the business as efficiently as possible so that it can quickly adapt to any change in the landscape.”
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