Marks & Spencer saved by strong food sales, and Persimmon is recovering fast

“Shares across most of Europe and Asia fell on Tuesday as investors were troubled by new tensions between the US and China, and several bits of corporate news disappointed,” says Russ Mould, Investment Director at AJ Bell.

“The US tightened restrictions on Chinese telecoms group Huawei in a bid to stop it buying computer chips made using US technology. Markets took this move as further evidence that there was little hope of relationships improving between the US and China in the near-term.

“Diversified miner BHP also disappointed with lower dividend payments and a gloomy assessment of the world, saying it expected most major economies apart from China to contract heavily in 2020. Its shares fell 2.5%, making it the biggest faller on the FTSE 100 after Rightmove which dropped 3.6%.

“The FTSE 100 itself retreated 0.5% to 6,097 with miners, technology, industrials and healthcare the worst performing sectors. The only areas to buck the negative trend were consumer cyclicals and telecoms.

“Elsewhere, Danish jewellery group Pandora slumped 7.7% after it poured cold water on market expectations for a rapid recovery in business. It now expects sales to fall this year by up to 20%, saying recent surges in Covid-19 and new, local lockdowns in August have impacted consumer behaviour.”

Marks & Spencer

“Marks & Spencer continues to make very tough decisions to right-size the business. It is very unfortunate to see thousands of job losses, adding to similar cuts among other major British businesses. Sadly, the retailer has no choice but to be as lean as possible to survive the current economic crisis and put it in a stronger financial position to recover longer term.

“The company should thank its lucky stars that it has a successful food arm, as that has helped to prop up trading during a very difficult time. Its clothing and home interests have struggled in the face of serious headwinds as demand fell off a cliff for office dressing and formal wear.

“The next big test for Marks & Spencer will be the imminent launch of its supply deal with Ocado for UK online food orders. A lot is riding on this joint venture being a success and further accelerating growth in Marks & Spencer’s food sales.

“This is the retailer’s chance to play catch-up with the online channel and failure to meet expectations could be disastrous for both management and the company’s already fragile share price.

“Marks & Spencer has been in turnaround mode for a long time and a lot of its effort has been spent trying to fix things rather than come up with new ideas. The Ocado deal is different as it is new territory for the group. Getting this venture off to a strong start could fuel optimism that the retailer is still capable of moving with the times rather than sinking into quicksand.”

Persimmon

“Of all the housebuilders Persimmon seems to have had the most success in getting its operations back on track following the impact from Covid-19.

“Build levels are back at pre-coronavirus levels and the company gets a tick in the ESG box for paying its staff in full throughout lockdown.

“This operational excellence is reflected in first-half results and accompanying commentary where the key takeaway isn’t the 40%-plus slump in profit for the period but the big year-on-year jump in average weekly sales since the start of July and the continuing growth in its order book.

“The increase in average selling price was also a noteworthy achievement given the backdrop and the decision to pay a dividend, albeit a modest one, is a display of confidence in the outlook for the business. Income seekers will hope Persimmon can build on these foundations.

“The recovery in the UK housing market since lockdown eased has been remarkable. A mixture of pent-up demand and, for those with the means, an aspiration to add to living space or find a place with room for a home office after the experience of being stuck indoors for weeks on end will have supported the rebound.

“Demand could well be tested in the autumn when the Government’s furlough scheme comes to an end and the unemployment rate begins to rise. Typically mounting joblessness and a healthy property market are not good bedfellows.”

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