FTSE 100 finally on verge of hitting pre-pandemic levels, and Avon Protection faces body armour body blow

“The FTSE 100 is on the cusp of finally hitting its pre-pandemic levels, nearly two years after the global market crash of February 2020,” says Russ Mould, Investment Director at AJ Bell.

“This has been a long time coming and somewhat embarrassing for the UK’s market reputation because the Nasdaq Composite in the US managed to claw back all its Covid-related market losses in just a matter of months – by 2 June 2020 it was trading ahead of the pre-pandemic levels.

“The magic number for the FTSE 100 to surpass is 7,403.92 which is the market closing price on Friday 21 February 2020. When the market opened the following Monday, it began a dramatic fall which saw the FTSE 100 slump 30% by 20 March 2020 to hit a post-covid trough of 5190.78.

“While the rebound was initially impressive, by June the rally has lost its momentum and it wasn’t until the first Covid vaccines were announced last November that it started to motor again.

“A key reason why the FTSE 100 has found it so hard to recover all the lost territory is the type of stocks that have the biggest influence on the index’s performance. The FTSE 100 is market-cap weighted so the largest companies really matter when it comes to how the index moves.

“Names like HSBC and Unilever are in this camp and they’ve limped along. Royal Dutch Shell is also a big name in the index and its shares only started to move upwards 12 months ago, so it is still playing catch-up.

“Since the February global market crash there have still been some impressive recovery stories. The best performer is Royal Mail, up 143% in share price terms since the 21 February 2020 market close. That’s down to the rapid acceleration of people and businesses buying stuff online. Royal Mail has seen a step-change in parcel delivery volumes, and it thinks this will remain and not simply be a one-off pandemic phenomenon.

“The second-best performer is Ashtead which has benefited from the US economic recovery where it rents out construction equipment. Its shares are up 135% over the period.

“The worst performer in the FTSE 100 index is British Airways owner International Consolidated Airlines, down 60% on a mixture of ongoing operational disruption linked to travel restrictions, debt pressures and having raised a large sum of money at a heavily discounted share price.

“Judging by Thursday’s rally, it looked as if we would hit the magic 7,403.92 level on Friday but so far that has not happened. In fact, an initial boost on the last trading day of the week quickly turned into disappointment with the FTSE 100 falling 0.3% to 7,360 in the first hour of trading thanks to AstraZeneca’s third quarter profit missing expectations and commodity producers having a bad day.”

Data: 21 February 2020 market close to 12 November 2021 am

Excludes investment trusts

Avon Protection

“It’s almost as if the last two-and-a-half years or so for defence business Avon Protection was some kind of fever dream, with the shares having raced up all the way to record highs above £46 last October before seeing an equally stratospheric fall to today trade at levels they were at in the summer of 2019.

“As a result, a share price chart of Avon for the last few years looks like the sort of forbidding mountainous peak which would strike fear into the hearts of even the bravest climber and the stock has proved just as treacherous for shareholders.

“Clearly the market got carried away with the potential of its personal protection equipment – sold to the military and emergency services. This was particularly true when the company sold off its dairy products division, allowing investors to focus exclusively on the protection potential.

“Trading on an elevated valuation left the business vulnerable to the slightest disappointment. And in Avon’s case the disappointments weren’t that slight. Body armour designed for use in the US coming up short in a crunch testing process and a competitor objection forcing a delay on the delivery of a head protection system for the US army were serious setbacks.

“The body armour issues are now so serious the company has launched a strategic review of this part of the business, signalling it could even be sold off entirely, while its full-year results for the year to 30 September have been delayed and are likely to see significant impairments, even if underlying performance will be in line with expectations.

“Worryingly for management’s credibility, Avon had already updated on its full-year performance in trading update last month, post the period end. For the current financial year, it is a case of wait and see, but it’s hard to be too encouraged.”

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