Tesla outpaces quarterly expectations, miners drag on FTSE and THG becomes a bid target

Tesla

“While all the focus may be on its founder’s attempt to takeover Twitter, Tesla shares unsurprisingly charged up after market hours in the US yesterday as it comfortably outpaced quarterly expectations,” says Russ Mould, investment director at AJ Bell.

“The electric vehicle manufacturer saw a seriously impressive gear change in sales and profit with deliveries surging despite the supply chain issues, including a global microchip shortage, which are dogging the industry.

“Electric vehicles continue to move into the mainstream and it feels you are just as likely to see a Tesla on the road now as almost any other make – with both its Model 3 and Model Y outselling the humble Ford Fiesta in the UK.

“The opening of new factories in different markets will help reduce costs and bring Tesla closer to potential customers around the globe, thereby reducing waiting times and not stretching their patience to the limit.

“The company may not market its products itself but as prices at the pump gush higher it will concentrate minds on the incentives of going electric.

“Tesla is so synonymous with electric vehicles it can piggy back on rivals’ own spending on marketing and advertising.

“The balance between a higher up-front cost and how much it sets you back to keep a car on the road is starting to tip in Tesla’s favour.

“That said a cost of living crisis and higher interest rates may make it trickier for people to finance Tesla’s prices which still run into tens of thousands of pounds.

“And Tesla shareholders may be somewhat miffed that Elon Musk is potentially going to be distracted by a fractious pursuit of Twitter, just at a time when the business is really starting to accelerate.”

Markets

“It’s been a bad start to the year operationally for the big mining companies and their latest updates have served to act as a drag on the FTSE 100. Hot on the heels of Rio Tinto’s disappointing update was Anglo American flagging a tough first quarter and guiding for an increase in costs.

“Commodity producers have enjoyed soaring prices in the past year but their moment in the sun might be coming to an end. The key question now is whether commodity prices are close to their peak for this cycle as a reduction in selling prices together with rising costs will put a squeeze on profit margins.

“Shareholders in Anglo American can’t really grumble about its latest trading update as they’ve enjoyed a 24% share price gain over the past 12 months, more than double the FTSE 100’s 10.4% gain. But the news might make them think about banking some of the profits.

“The cracks in the latest round of trading updates from the sector are a reminder that mining operations don’t always run smoothly, commodity prices rarely go up in a straight line on a sustained basis, and earnings are volatile.

“Antofagasta was also in the same boat as Anglo American, with a difficult first three months of 2022 and it delivered news that spending will be at the top end of previous guidance. These negative factors were compounded by its shares trading without the right to the next dividend, amounting to a near-8% share price decline. Life insurer Legal & General also went ex-dividend, leaving its shares down 5.4%.”

THG

“Having joined the stock market amid significant hype about its future growth potential and then fallen flat on its face amid criticism around corporate governance, a lack of transparency and a squeeze on margins, one might wonder why THG has attracted takeover interest.

“While the company hasn’t disclosed who was behind recent approaches, one can only speculate it is private equity looking to sift through the bones of the company after its share price collapse. Even bad businesses might offer some value if you look hard enough.

“Chief executive Matthew Moulding has had many a cold shower since THG joined the stock market and he certainly isn’t going to let an asset stripper pick up the company on the cheap.

“Whether his idea of what the business is actually worth is reasonable or (more likely) in fantasy land, one cannot help feel that long-suffering shareholders might welcome a chance to get out now at a small premium to the market price so they can at least cut their losses and put the sorry episode behind them.

“The share price is trading 80% lower than its 500p IPO price in 2020, making it one of London’s worst stock market listings in recent years.

“As for the latest state of play, THG’s trading update contains more adjustments than a tailor’s shop.”

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