Markets flashing red, Polymetal reassures, Tandem has an inventory problem and slowing growth at Naked Wines

“Red was the dominant colour on the markets across Asia and Europe, following a similar showing on Wall Street last night. Investors just cannot find a good enough reason to shift their bad mood and so the selling continues,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 fell nearly 1%, thanks mainly to weakness in commodity producers. The basic materials sector, which includes miners, and the oil-heavy energy sector both dropped by 1.3%. Close behind was a 1% drop in the real estate sector. Healthcare, industrials and utilities were also weak.

“Investor sentiment towards commodity producers is heavily influenced by the global economic outlook which is not great at present. The market is worried that central bankers will make a policy mistake in their fight against inflation by pushing up interest rates too fast and causing a recession. The perfect scenario is a soft landing, but that is hard to achieve.

“The price of copper for delivery in three months’ time sunk to a 16-month low amid worries about the economic outlook and fears about Covid cases in China, a country known for its ravenous commodities demand.

“Russia-focused silver and gold miner Polymetal reassured the market that it was still able to sell gold from its operations in Kazakhstan, and that Russian operations were picking up after Covid-related slowdown in April and May.

“Polymetal said it would decide in September whether to pay dividends. Given rising net debt and short-term liquidity challenges, it seems highly unlikely that shareholders will get a cash payout in the near-term.

“Dawes and Claud Butler bikes group Tandem is still suffering a hangover from Covid. During the pandemic bike retailers couldn’t keep up with demand as sales were going through the roof. This momentum was unsustainable and now retailers are sitting on too much stock, which means that Tandem’s own inventory levels are higher than normal as demand has eased back. It has signalled an intention to run promotions and special offers to shift more units, which might solve its storage problem but won’t be good for its profit margins.”

Naked Wines

“Slowing growth and signs customer retention are slipping have turned up the heat on online wine merchant Naked Wines.

“The very definition of a pandemic winner, Naked Wines has pulled the trick practiced by lots of businesses which prospered during Covid and pointed to growth in the period before restrictions were imposed.

“However, that hasn’t stopped the market from turning its attention to the less flattering year-on-year numbers.

“When we were all stuck at home the idea of getting a regular order of wine delivered felt to many people like an attractive way of treating themselves and breaking up the monotony of lockdown.

“Naked Wines also offered something a bit different from the usual bottle of plonk plucked off a supermarket shelf, connecting its subscribers with independent winemakers.

“Whether that pull still remains now household budgets are squeezed and people have the option of going out for a drink is open for debate. If you have the money to spend the thought of sharing a bottle of wine with friends in a bar, pub or restaurant, after a long period when that option was off the table, is undoubtedly attractive.

“Tellingly Naked Wines is expecting to spend a considerable sum on customer acquisition in the current financial year and expects to be breakeven at best. This is a far from ideal message at a time when investors are in no mood to wait for profit.”

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.