Good day for markets with energy and travel sectors in demand, while AO profit growth soars on lockdown boost

“An upbeat day for the markets has been spurred by Donald Trump accepting the US presidency transition to Joe Biden must begin, thus implying a smoother than expected handover,” says Russ Mould, Investment Director at AJ Bell.

“Also supporting markets was a pick-up in the Brent Crude price by 1.4% to $46.44. Oil acts as an economic bellwether and the commodity has been on a tear for the past month, rising by more than 20% in value as markets start to become more optimistic about economic activity amid positive vaccine news.

“The FTSE 100 advanced 0.7% to 6,379 with energy the top sector performer. Royal Dutch Shell traded 2.1% higher and BP jumped 2.9%. The index’s top riser was International Consolidated Airlines as investors felt brave enough to buy one of the biggest lockdown losers in hope that its shares have been oversold.

“The FTSE 250 had another good day, rising 0.9% with leisure stocks in demand including a 9% rise in TUI and a 6% rise in Carnival, with many households now hoping that foreign holidays will once again become a reality rather than a fantasy.

“In mainland Europe, the Euro Stoxx 50 index traded 1% higher and in Asia the Nikkei 225 index soared by 2.5% as investors got their first chance to respond to the latest vaccine news from AstraZeneca.”

AO

“For years, AO has insisted it was on a path to profit and that strong levels of revenue growth would eventually tip the business into positive earnings. For most of the time, the market cast doubt over its ability to hit the profit goal, saying it was a highly competitive industry and AO’s German operations were holding the business back.

“The past 12 months have seen a radical change in opinion from the market as AO delivers on its goal and finally starts making a decent profit.

“Lockdown measures have been a major catalyst with AO seeing a significant jump in demand for electrical goods, providing the opportunity for it to show the benefits of good customer service and competitive pricing.

“If you needed a laptop to work from home or found your fridge overworked from stocking up on food and drink, then AO has been one of the retailers providing a solution.

“AO has reported £18.3 million pre-tax profit for the six months to 30 September. That is more than 12 times the amount of profit it achieved in the whole of the financial year to 31 March 2020 (£1.5 million).

“Its German arm is forecast to be profitable in the financial year ending March 2022 which would be another tick in the box for the business.

“However, there is still a nagging feeling that AO is in a purple patch which may fade away once society returns to normal assuming widespread Covid vaccinations.

“AO has been one of the biggest lockdown beneficiaries, but what happens when those restrictions ease and more people spend less time at home?

“A key sales tailwind could disappear, meaning AO will have to work hard to keep the customers it won during lockdown by encouraging them to buy other goods, as well as find ways to recruit more customers. That won’t be easy.”

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