FTSE gets shot in the arm amid US stimulus jobs hope and Boohoo goes shopping for more brands

“The FTSE 100 started a new week with solid gains built on optimism over the vaccine-led fightback against the pandemic, strong gains in Asia and US stimulus hopes,” says AJ Bell Investment Director Russ Mould.

“Japanese stocks achieved the milestone of hitting their highest level in 30 years, further demonstrating how resilient appetite for risk remains as investors are prepared to look beyond lockdown.

“The positive sentiment also comes despite some concern about the efficacy of vaccines, notably the AstraZeneca and Oxford University jab, against the new South African variant of Covid.

“US Treasury Secretary Janet Yellen’s weekend claim that the country could return to full employment if Congress were to pass President Biden’s $1.9 trillion stimulus package gave markets a window into what such significant action could mean for the world’s largest economy.

“Oil prices surged to pre-pandemic highs as traders of the commodity looked towards a potential recovery in demand. This could help add fuel to M&A chatter in the industry after it emerged ExxonMobil and Chevron had held talks over a combination last year.

“The last round of mega-mergers came a little over 20 years ago. However, this time round tie-ups could just double businesses’ problems given the need to transition away from the traditional oil and gas assets which dominate their portfolios as part of a global transition away from fossil fuels.”

Boohoo

“Hot on the heels of buying intellectual property from Debenhams, Boohoo is reaching into its wallet once again with the purchase of three names from Arcadia.

“The acquisition of the Dorothy Perkins, Wallis and Burton brands are unlikely to turbocharge its growth, but they are familiar names to the UK’s shoppers and Boohoo must clearly see an opportunity to squeeze some value out of them.

“Burton’s clothes are hardly cutting-edge fashion and are best described as ‘functional’ so not exactly a natural fit for Boohoo which is trendier in style. Nevertheless, there will be plenty of people who don’t want the fuss of keeping up with the latest styles and so Boohoo’s acquisition of the Burton brand could see it reach a new type of customer, therefore expanding its reach. It should also help with its strategy of expanding its menswear proposition.

“One could argue that Dorothy Perkins is a more grown up, less edgy version of TopShop. This might appeal to some of its more conservative customers who have grown out of Boohoo’s styles. Wallis was a turnaround brand under Arcadia and typically aimed at 30 to 50-year olds, so another way for Boohoo to retain customers as they get older.

“Boohoo now has a lot of work on its plate in sorting out the strategic direction for its plethora of newly-acquired brands. At the same it is still trying to improve standards across its existing business which means management will have to be good at multitasking or chaos will ensue.

“Reports that it has given suppliers a month to stop subcontracting shows how Boohoo is determined to repair its reputation following last year’s report by Alison Levitt on working conditions in its supply chain.

“The high-profile criticism of working practices caused considerable embarrassment at Boohoo and made many investors question if they should be backing a business with questionable ethics.

“In Boohoo’s defence, it has taken the matter very seriously and has taken a series of steps to improve how it does business.”

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