Investor sentiment remains fragile as FTSE falls, while FirstGroup shares soar on US disposals

“Consumer sentiment may be surging in the UK as covid restrictions are lifted but investor sentiment remains pretty fragile after Tuesday’s big sell-off,” says AJ Bell investment director Russ Mould.

“Friday’s market open was the latest reminder that the FTSE 100 is in no way a proxy for the UK economy. In fact, in the short-term good news for the UK can be bad news for the index as a rise in the pound against other currencies hits the relative value of its constituents’ overseas earnings.

“The rollout of vaccines has been impressive in the UK, but the situation globally is decidedly patchy, causing understandable nervousness in the markets.

“Also, the Biden administration’s latest tax proposals – which look set to include big hikes in capital gains tax – saw US stocks take a tumble overnight.

“The push for tax increases on individuals and businesses reflects the need to pay for the huge outlays across the pond aimed at stimulating the economy and boosting infrastructure.

“The latest government debt figures in the UK show the lingering scars on the public finances from the big spending on the furlough scheme and other initiatives through the pandemic.”

FirstGroup

“It’s another win for the activist investor community as FirstGroup strikes a deal to sell two US operations. Its biggest shareholder Coast Capital had been putting pressure on FirstGroup to do something about this part of the business, initially suggesting a demerger but the sale should go down well given the good price achieved.

“There are still some bits to tidy up with the remaining operations, such as the likely sale of its Greyhound business. That should then leave it focused on the UK bus and rail market.

“The rise in working from home has put a question mark over the level of commuter demand going forward. It could be another year before there is more clarity on the new operating models for companies and how much flexibility is given to staff regarding their working location. However, FirstGroup is no doubt taking a long-term view that demand for public transport will remain robust.

“On the rail side, the UK Government is moving to a more predictable contract model whereby operators such as FirstGroup will be paid a fixed management fee with performance incentives for delivery against specific punctuality and other operational targets.

“FirstGroup will certainly be in a better financial shape thanks to the US disposals. That will be quite a relief for the company after a long period of management first being distracted by shareholder pressure and then having to deal with the brutal impact of covid-19 on transport demand.”

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