FTSE drifts on strong pound having fallen short of pre-pandemic levels, Royal Mail turnaround in flight

“The FTSE 100 continues to drift having fallen just short in its effort to reclaim pre-pandemic levels,” says AJ Bell Investment Director Russ Mould.

“Once again, the index is left in the miserable position of being shown up by its global peers, many of which had put their Covid losses behind them months ago or even longer. In a global index sports team the FTSE is getting picked dead last.

“Mounting inflation has helped drag the index back as it raises the likelihood of a pre-Christmas rate rise, thereby boosting the pound. When some 70% of its constituents’ earnings are derived from overseas, strength in sterling isn’t that helpful.

“There was an ugly bulletin from Daily Mail & General Trust. After some internecine warfare among its print titles, with Daily Mail editor Geordie Greig ousted overnight, it warned on print costs and events disruption. Investors didn’t take too much notice given the firm is on course to be taken private by its founder, the Rothermere family.

“Gambling technology group Playtech is attracting suitors faster than Marilyn Monroe, as a third takeover approach from former Formula One boss Eddie Jordan sets the scene for a bidding war.

“A rumoured £3 billion proposal would blow the existing offers out of the water, and shareholders will be watching closely hoping they can be the winners in any battle for the business.”

Royal Mail

“As turnarounds go, Royal Mail can finally say it is making progress. Revenue and profit are growing, net debt is coming down, it has realised some cost savings, and it is confident enough to use some of its cash reserves to buy back shares and pay shareholders a special dividend.

“With large parts of the world having become more accustomed to buying goods online since the start of the pandemic, it’s fair to say 2021 will be the second ‘digital Christmas’ in a row. It’s so much easier to order goods online than venture to the high street and the system requires companies like Royal Mail to help deliver these items to the customer’s doorstep.

“Like many turnaround situations, Royal Mail’s recovery is far from complete and it says there is still a lot more work to do, and that there are also various headwinds for the business.

“A key risk to a bumper festive season for Royal Mail is whether supply chain issues spoil the party. Stock availability is a worry for retailers, and they will be praying that customers find a suitable alternative from their virtual shops if their first choice is not available.

“Royal Mail also flags a higher than expected number of staff off sick, as well as elevated vacancy levels, which means productivity is being impacted. That would suggest delays to customers receiving items and no-one wants their Christmas presents stacking up in a sorting office.

“Parcels delivery is highly competitive but Royal Mail is managing to retain its position in the market. It is convinced that the e-commerce surge experienced since Covid-19 struck is not a flash in a pan, it’s a structural shift that is here to stay – and that means higher parcel volumes permanently.

“It is also important to remember that Royal Mail is not just a UK business, it’s an international player and its overseas GLS arm continues to do very well.”

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