FTSE drops after wild swings in oil prices, while Boohoo rallies but still faces big challenges

“Wild swings in oil overnight reflect the febrile nature of markets right now and also just how little visibility investors have,” says AJ Bell Investment Director Russ Mould.

“The 17% drop in crude prices, after UAE signalled a willingness to increase production, would certainly help to reduce inflationary pressures which had intensified since the start of the war.

“However, oil prices then settled a little higher to leave investors unsure if they are coming or going.

“From a Western perspective the war in Russia is very much an economic one and the full ramifications may not be known for quite some time.

“In that context it is unsurprising that European stocks followed some bumper gains yesterday with a renewed weakness today.

“National Express chugged higher; investors do not seem too perturbed by the company being beaten to the punch for rival Stagecoach by a German asset manager and National Express’ 2021 results showed a decent recovery in profit and cash flow.

“The return of dividends is coming down the road too, a show of confidence by management in the outlook for the business.

“Property services outfit Savills, always a decent proxy for the wider real estate market, impressed as the market emerged from the deep freeze it endured during the pandemic.

“Less positively the company pointed to considerable uncertainty in the coming 12 months. Even without rampant inflation, conflict and an increase in discretionary costs Savills expects volumes to normalise suggesting 2022 is likely to be a fair bit trickier than 2021.

“Infrastructure group Balfour Beatty showed it’s not all about growth for its own sake as, despite a slight drop in revenue, the market warmed to results which revealed improved cash generation and profit – now ahead of pre-pandemic levels.

“If it is able to, the UK Government is likely to continue prioritising infrastructure projects to help boost productivity and efficiency in the economy.”

Boohoo

“Boohoo has had a horrific past 12 months with its share price falling by nearly 75%. It has suffered a few nasty profit warnings centred around slowing growth, and it is still trying to convince the market that its corporate governance standards are improving, through better monitoring of its supply chain and not getting its clothes made in sweatshops.

“In December it moaned about customers sending more of their orders back, disruption to moving goods around the world, and ongoing cost inflation. Supply chain issues continue to bite, and higher return rates look set to stay, at least in the near-term.

“Full year sales growth of 14% is at the top end of the 12% to 14% range provided in December. This provides some relief to the market that life hasn’t got worse for the company and might explain why the shares have rallied on the news.

“Fast growth has been the name of the game for Boohoo for so long. The rhyme might have to change given the financial pressures on consumers from rising inflation.

“With food and energy bills taking up a greater proportion of its target market’s take-home pay, there will be less money available for discretionary spending such as buying a new dress from Boohoo.

“Consumers who found themselves on furlough during the pandemic got a wake-up call about the need to have more money in savings and not to be reliant on debt. Hopefully the nation is getting better at forging positive personal finance habits, but that doesn’t work in Boohoo’s favour if its customers are now thinking twice before buying an item of clothing they may only wear once and then chuck.

“The company’s growth expectations were pared back after last year’s profit warning, and it is hard to see Boohoo achieving anything above low double-digit sales growth this year at best.

“A bigger concern is how Boohoo will cope with cost pressures which look like they could intensify. One can only expect profit margins to be squeezed further.”

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