FTSE resilient despite US stimulus setback, Tesco profit up as Murphy takes over

“Despite a sell-off on Wall Street as the Trump administration torpedoed the latest talks on a stimulus package for the US, the FTSE 100 was flat at around the 5,950 mark on Wednesday morning,” say AJ Bell Investment Director Russ Mould.

“There are hopes that the stimulus plans could be revived in the period between the election and January’s inauguration which are probably helping investors keep the news in perspective for now.

“In the UK the housing market looks very buoyant for now based on the latest figures from Halifax, though it is worth emphasising the ‘for now’.

“A period of hibernation at the height of lockdown meant there was lots of pent up demand, while measures like the Stamp Duty holiday are also providing a short-term boost. What happens when the full economic impact of coronavirus is felt could be another story.

“And there are some signs at the margin in this latest set of figures that demand may be about to wane.

“In corporate news the takeover saga around G4S continues as the support services firm continues to fight off the attentions of hostile bidder GardaWorld which has started making overtures to key shareholders.

“G4S sees its position somewhat undermined by a weak track record which could see investors tempted by the certainty of a cash offer over a less than clear path to better returns as an independent entity.”

Tesco

“It turns out that Tesco’s initial expectation that the benefits from a change in the UK’s shopping habits would be outweighed by the extra costs associated with adapting to Covid-19 realities was a bit conservative.

“Despite the investment required for hygiene measures, distancing and an expansion of its online delivery capacity, the company still reported an impressive advance in first half profit.

“A big rise in the dividend is also welcome but it is worth remembering the scale of the increase reflects a shift in dividend policy rather than significantly more generous payout.

“All-in-all this represent a very solid start for new CEO Ken Murphy following the departure of his predecessor Dave Lewis last week. Lewis effectively teeing Murphy up for an open goal and providing a confidence boost for the new man by handing over a very well set-up operation.

“While Lewis has done a good job of fixing the internal problems which dogged the business in the early-to-mid-2010s Murphy will face significant external challenges around coronavirus and Brexit which could define his tenure.

“With the Asian business set to be fully divested by the end of 2020, he also faces a decision on the fate of Tesco Bank.

“Having a big banking operation feels like a legacy of a period when one satirical TV show joked the company’s tagline could be changed from ‘Every little helps’ to ‘We control every aspect of your lives’

“In the next decade the challenge for the company is to stay on top of the shifts in consumer behaviour, an area in which it has got a head-start given the pandemic has accelerated the move to shopping for groceries over the internet, while protecting its market share against challenges at the premium and discount end of the market.

“At least Murphy has a new numbers man to help him meet these challenges as Tate & Lyle’s well-regarded finance chief Imran Nawaz gets set to join the supermarket in April next year.”

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