FTSE up as China cuts mortgage rate, Deliveroo gets Omicron sales boost, and Primark enjoys bumper sales growth

“The FTSE 100 started Thursday on the front foot as the Chinese central bank continued to buck global trends by cutting a key mortgage rate,” says AJ Bell Investment Director Russ Mould.

“China has often found itself at odds with the rest of the world economically over the last two years, perhaps unsurprisingly given it was the first country to be hit by the Covid-19 pandemic.

“And its efforts to revive a struggling property sector by relaxing monetary policy, at a time when the likes of the Bank of England and Federal Reserve are in rate-hiking mode, should probably be seen in this context.

“Mining stocks and Burberry, which has substantial exposure to China, got a lift off the back of the news.

“Takeaway platform Deliveroo, which has endured a troubled start to life as a public company in the wake of a disastrous IPO last March, announced strong fourth quarter sales growth.

“The effective lockdown conditions created by Omicron undoubtedly helped but with restrictions starting to be lifted, this supportive trend is rapidly moving into the rear-view mirror.

“Already dealing with the pressures of an extremely competitive market, Deliveroo now faces the prospect of a cost of living squeeze which may weaken appetite for ordering takeaways on such a regular basis.

“Julian Dunkerton’s rescue mission at faux-Japanese fashion retailer Superdry is enjoying some success as the company benefited from sales growth and crucially offered fewer discounts. Dunkerton also seems to be kicking the online operation into shape, helping to boost profitability in that part of the business.

“Later today, US streaming platform Netflix is set to report its fourth quarter earnings. Microsoft’s big move for gaming firm Activision Blizzard should put the spotlight on Netfix’s own ambitions in this space as the lines between different forms of screen-based entertainment get increasingly blurred.”

Primark (Associated British Foods)

“Primark continues to be a star in the retail sector, drawing in crowds of people daily with its affordable products.

“Efforts to spruce up its stores have made the shopping experience more pleasurable, and ongoing product innovation means you can get clothes that look smart, carry popular culture brands or have designs in line with the latest fashions, rather than simply being a destination for essentials like a white t-shirt or a black skirt.

“This reputation for cheap clothes that are more than simply functional is paying off, with the company once again reporting strong sales growth.

“The rapid spread of Omicron across the UK in December was a major headwind for Primark given it is reliant on people visiting its shops because it doesn’t have a website where you can buy clothes. Yet it seems to have shrugged this negative factor off, confidently saying that a recovery in footfall to its shops is already being seen after a short period of disruption.

“Primark continues to expand geographically, with parent company Associated British Foods having created a business model that is easily scalable, and which can be replicated in markets around the world.

“The forthcoming website overhaul in the UK will showcase its products and let customers check product availability by store. However, there is a question mark whether that will result in significantly greater sales.

“Consumers will often visit a website and add items to their basket as they browse the pages, often buying more than they originally intended to. Yet browsing a showcase website, writing those items down on a list and then travelling the store to buy them is a hassle and certainly not the type of convenience to which so many people are accustomed these days.

“Primark has always argued that the economics of selling goods online doesn’t add up when its prices are so cheap. But one must wonder if part of the reason is because it doesn’t want to lose out on the impulse buying when people visit its stores. Yes, a lot of shoppers may add extra items to their virtual basket when they browse fashion outlets online, yet do they buy even more if they’re in a shop like Primark?

“The happy middle ground must be launching a click and collect service. It would mean Primark could finally say it sells online, and it still gets people through the door who might continue to buy additional items on impulse when they are collecting their pre-paid order.”

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