New rail plan sees Trainline hit the buffers, and Kingfisher has finally fixed it

“After the rout, here comes the rebound. The FTSE 100 has shaken off the latest inflation and bitcoin inspired setback to trade higher on Thursday,” says AJ Bell investment director Russ Mould.

“While the markets don’t want central banks to start raising interest rates too soon, they’re also clearly worried about rising prices running away and creating a situation where policymakers have no choice but to act.

“Overnight minutes from the US Federal Reserve suggesting some members favour a tapering of asset purchases may actually reassure investors that the Fed can keep the economy bubbling away without letting it overheat.

“While bitcoin’s slide was eventually averted after a very dramatic fall – its credentials as a means of protecting against rising prices look pretty tarnished, with gold shining in its stead.

“The risks associated with the pandemic haven’t gone away – while the developed world finally seems to be gaining some control over covid-19 the situation is very different in emerging markets and this could be a threat to the commodity-focused firms on the FTSE, given a lot of demand comes from developing countries.”

Trainline

“When there are limited barriers to entry for a business there are always risks as rail ticket seller Trainline is discovering to its cost today, lending credence to financier George Soros’ decision to short the stock through his UK investment arm.

“When your potential competitor is the state the threat can be almost existential and the sweeping changes to the UK railway network which have been announced contain an important detail which is potentially devastating to Trainline’s business model.

“The new Government-backed Great British Railways body is set to sell tickets in England and, while it won’t be set up for a couple of years, once it’s in place the plan is also to simplify the process of buying tickets.

“This has two implications for Trainline – potentially a lot of people will buy tickets from this new centralised body and if the previous labyrinthine ticket pricing system is made easier to navigate, the company will have less of a role in helping passengers find the best available price.

“Innovations like offering people predictive travel information and telling them how busy services are may make some difference at the margin in maintaining loyalty to Trainline’s site but it is hard to believe it will be enough.

“The company now faces a two-year deadline to somehow preserve its relevance under the new set-up. It won’t be an easy task.”

Kingfisher

“The pandemic has given Kingfisher the jump start it needed to finally get moving. Not only are sales shooting up, but it is making good strides strategically including the launch of Screwfix as an online brand in France.

“After years of failing to turn round the business, covid making so many people housebound has put Kingfisher’s brands including B&Q firmly in the sights of shoppers as we entered a new dawn for DIY.

“Its latest update would suggest the business is still on a roll, albeit with expectations for the second half of the year to see a decline in like-for-like sales, given the tough year-on-year comparative figures to beat.

“There is a spanner in the works though. Product shortages are expected to last for at least the next six months, which won’t go down well with the nation of home movers and improvers.

“Inflation is another issue, yet Kingfisher says it wants to remain competitive which suggests it will do everything to avoid pushing up prices too much for the customer. That implies its margins could come under pressure or it will have to get tough with suppliers and demand better deals.”

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