TUI upbeat but no mention of coronavirus risk, and JD’s acquisition of Footasylum in doubt

“Most of Asia, Europe and the UK saw strong gains on Tuesday, including a 1% gain in the FTSE 100 to 7,524 thanks to strength in utility companies, natural resources producers and banks,” says Russ Mould, Investment Director at AJ Bell.

“A 1.1% rise in the Brent Crude oil price to $53.85 per barrel will also have given the markets some support. US markets rallied last night including a 0.7% rise in the S&P 500.

“Investors seemed quite upbeat despite the ongoing coronavirus incident where the global death toll has now passed 1,000."

TUI

“Given the backdrop of travel fears around the coronavirus and pictures of an infected cruise ship all over the news, TUI’s positive news has taken the market by surprise.

“Booking trends improved in the first quarter of its financial year, its Markets & Airlines business is doing particularly well, it is finding ways to deal with cost pressures, and it expects compensation from Boeing.

“This is a solid update and one certainly helped by the demise of former rival Thomas Cook which has enabled TUI and others to increase market share. However, the message may not be the same in three months’ time if the coronavirus isn’t contained.

“Many people may become nervous about travelling to certain parts of the world or being in crowded places, suggesting that life could become harder for travel companies.

“TUI’s latest update only covers the three months to 31 December 2019, so before the coronavirus became headline news. The company says the financial year has started ‘exceptionally well’ but makes no references to the health incident in its outlook statement despite it being a clear risk to earnings.”

JD Sports Fashion

“Investors appear to be taking the news that trainers and tracksuits retailer JD Sports might have to abandon its acquisition of rival outfit Footasylum in their stride.

“To loud howls of protest from JD, the Competition and Markets Authority (CMA) has intervened, suggesting the deal would be bad for shoppers and provisionally indicating it is prepared to block it.

“This might end up being a blessing in disguise for JD Sports. Although it apparently targeted a slightly older demographic, Footasylum never looked much of a prize, even if the involvement of JD Sports’ founders in the venture made it a logical fit.

“Footasylum had endured a spell on the stock market which was painful as it was short before JD stepped in last March.

“Unlike its larger counterpart Footasylum had found life on the high street a struggle and being forced into selling stock at big discounts won’t have done much for the integrity of the brand.

“In coming out swinging against the CMA decision, not unfairly it has to be said given the legitimate points about just how competitive a market sports retail is, management have also revealed just what small beer the transaction represents to JD.

“The CMA’s actions demonstrate an increased willingness on the part of the regular to intervene following the nixing of the Sainsbury’s and ASDA merger and a current probe into Amazon’s investment in food delivery service Deliveroo.

“Consumer facing UK businesses pursuing M&A in the future will have to watch out for these sharpened claws.”

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