FTSE on course for strong end to the week, Avon Protection in major warning

“The FTSE 100 looks like rounding off a decent week in fine fashion on Friday as investors shrugged off a Delta variant linked sell-off in Asia,” says AJ Bell financial analyst Danni Hewson.

“However, the closure of Chinese ports in an effort to control the spread of the more infectious covid strain could add to global supply chain disruptions and become something the market cares about in fairly short order.

“For now UK stocks are taking their cue from the US, where the S&P 500 closed at a record high for a third consecutive day. Entertainment giant Disney demonstrated the increasing power of its huge library of content as it unveiled a better-than-expected quarterly performance.

“Its ownership of franchises like Star Wars, Marvel and Pixar – alongside the traditional House of Mouse stuff – is helping it hoover up subscribers and, as coronavirus restrictions are lifted, people are coming back to its theme parks too.

“This is important as the experience of interacting with Disney creations helps reinforce their appeal to prospective viewers.”

Avon Protection

“However much it insists these are all short-term factors and the medium-term picture remains positive, the damage from today’s revenue warning from defence and protection kit maker Avon Protection could be lasting.

“The specialist in body armour, gas masks and other breathing apparatus is being hit by a damaging combination of supply issues and order delays, which it attributes to the impact of covid-19.

“While these may be legitimate excuses, this certainly isn’t a case of the dog ate my homework, others in its peer group seem to have been able to mitigate these impacts more effectively and the pandemic isn’t something new, these problems could and probably should have been seen coming earlier.

“Avon’s failure to do so damages the credibility of the group’s leadership and the knock-on effect from the disruption is significant because it has lots of fixed costs, resulting in a bit of a cash crunch.

“The reference to a tight US jobs market and the resulting wage inflation is something that is increasingly cropping up and is a reminder that this big inflationary pressure is continuing to stalk the wider markets.

“Once known as Avon Rubber, the company will be hoping it can bounce back rapidly from this setback but this isn’t the first time it has disappointed recently and it could take time to win back the market’s trust.”

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