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“The FTSE 100 is now within a whisker of its January 2022 starting position, meaning that anyone who owns a fund tracking this index will be smiling given how the performance is better than most other major stock markets in the world,” says Russ Mould, Investment Director at AJ Bell.
“Commodity producers have been the FTSE’s saviour and they are once again driving the index at the start of the new trading week. The top five risers in terms of index points were Shell, BP, Rio Tinto, Glencore and Anglo American, implying that investors are regaining confidence about commodities demand and being less pessimistic about global economic growth.
“Investors have endured very difficult conditions this year. Persistent rising inflation, higher interest rates, war and now recession fears; it’s no wonder that sentiment has been very weak.
“Last week’s shock from US consumer-facing companies regarding the outlook for consumer spending shows the market is increasingly pricing in the prospects of recession. Therefore, it is difficult to suggest today’s market rally is the start of the big comeback for equities.
“The consumer spending shock is still unfolding, and we could see more pain for corporates and individuals in the coming months. Markets always price in what they think could happen, but it feels like there could be more gloom ahead. Corporate profit margins are being squeezed and that could lead to reduced business investment which in turn could hurt the economy.”
Kingfisher
“It was always going to be a tough ask for B&Q-owner Kingfisher to match the extraordinary period in 2021 when it was one of the few shops able to operate, and people’s desire to do up homes they had been stuck in during lockdown reached a zenith.
“Sales are proving more resilient than some might have feared. This suggests there is still some pent-up demand for home improvement despite the pressures on household budgets.
“While inflationary pressures are a challenge which the company is having to manage, it sounds like the supply chain problems which had been dogging the DIY sector, like so many others, is at least starting to ease.
“This is crucial as one of the absolute musts for a retailer is to have the right products available to customers in the right place and at the right time – so news that Kingfisher’s product availability is approaching pre-Covid levels is a significant milestone.
“Kingfisher has also benefited from market share gains as weaker rivals have faltered and its scale and financial strength should stand it in good stead for what promises to be a tricky consumer backdrop.
“In some ways the real work for Kingfisher starts now – it needs to protect margins and keep its prices keen enough to attract customers, which is a tricky balancing act.
“At least the renovation project on the business both ahead of and during the pandemic means it is in a good position to weather harder times, while the decision to spend another £300 million buying back shares demonstrates a measure of confidence in the future.”
Moonpig
“Moonpig’s long-term growth plan is focused on selling gifts alongside greetings cards. It can make a lot more money bundling a teddy bear, box of chocolates and flowers with a birthday card than simply selling the latter on its own. It’s therefore logical to see it acquire to increase its presence in the gifting market and branch out into more expensive experiences.
“The purchase of Buyagift includes Red Letter Days, a business previously owned by Dragon’s Den judge Rachel Elnaugh until it collapsed into administration in 2005, blamed on over-expansion. Fellow Dragon’s Den stars Peter Jones and Theo Paphitis rescued the business before selling it in 2017. Once again it passes to a new owner.
“Moonpig is paying just under nine times EBITDA (earnings before interest, tax, depreciation and amortisation) to acquire Buyagift which is not a bargain, but equally not excessive. Given Red Letter Days’ tarnished history, Moonpig shareholders will be hoping this is not a cursed business and one which the new owner will regret buying.”
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