FTSE swoons on second wave fears and lockdown hunger drives Premier Foods’ sales growth

“Just when it looks like the markets are shaking themselves free of coronavirus another bout of worry returns to put them on their back,” says AJ Bell Investment Director Russ Mould.

“The US is seeing a spike in new cases in some states, although whether this reflects a second wave or a continuation of the first wave is open to debate.

“Other countries, such as Germany and China, have seen an increase in infections in some areas after emerging from lockdown.

“At the very least we can probably expect more of these localised flare-ups of the disease, with regional containment measures imposed to deal with them.

“While the economic impact of such measures will be less than shutting down an entire economy, a recovery of this nature is a messier story for investors to digest and this could act as a drag on equities, hence the FTSE 100 stepping back 0.8% today.

“There was limited corporate news to distract from this downbeat macro mood. Though the announcement that National Express chief executive Dean Finch is to take over at Persimmon at the end of 2020 may ultimately be received positively at the FTSE 100 housebuilder.

“For the first 10 years of his tenure he generated a total return for shareholders of 176%, outpacing the FTSE All-Share over the same timeframe.

“It seems fairer to judge him on this period than the last four months when, inevitably, the coronavirus crisis has had a disproportionate impact on the stock, as it has with most of the wider transport sector.

“Numbers out today from Persimmon’s peer Crest Nicholson provide an indication of the sort of challenge he will face in the wake of the pandemic as it guided for a 70% fall in 2020 profit.”

Premier Foods

“Premier Foods has been waiting a long time for some good fortune and it finally seems as if luck is on its side. Full year results show continued sales and profit growth and its new financial year has started with a bang as the nation gorges on cakes during lockdown. First quarter revenue is up by 20% year-on-year, thanks in part to strong grocery sales.

“Investors have been feasting on its shares in recent months with the price rising by more than 230% since mid-March. The latest financial results have fuelled this market hunger, resulting in further share price gains.

“Pension pressures are easing, trading is strong, and the ratio of net debt to earnings is lower than targeted. It is now in a strong position in invest more in the business such as product innovation, marketing and upgrading its assets.

“It could get a further financial boost from selling its 49% stake in bread producer Hovis, although Premier Foods has yet to comment on media speculation that the asset is going to be put up for sale.

“Premier Foods may look like the cat that got the cream, yet it still needs to deal with competition from private label suppliers and rival brands. There is also the risk that the nation realises it has been over-indulging on sweet treats during lockdown and households cut back on items like Mr Kipling cakes

These articles are for information purposes only and are not a personal recommendation or advice.