Tesla misses forecasts and mixed fortunes for Akzo Nobel, Travis Perkins and Dunelm

“After another weak session on Wall Street last night, the negative tone spread to Asia on Thursday with Hong Kong’s Hang Seng index down 1.3% amid concerns about a sharp slowdown in China’s economic growth. European stocks also slipped, albeit by a smaller amount,” says Russ Mould, investment director at AJ Bell.

“The FTSE 100 dropped 0.2% to 6,914, with healthcare, mining, and financials among the weakest sectors.

“The more domestic-focused FTSE 250 index also fell by 0.2% amid ongoing political chaos. Investors are clearly nervous about the economic outlook for the UK, as illustrated by the type of shares that were falling the most. They included ITV, which is partially a play on corporate advertising demand, WH Smith and Moonpig which represent consumer spending, and Vistry whose fortunes are highly leveraged to the state of the housing market.

“After being in falling trend since the start of the week, the 30-year gilt yield started to move higher again late yesterday afternoon amid the uproar in Parliament. The yield traded just at 4.039% early on Thursday. The trend is worth watching but there doesn’t seem to be any major panic on the markets at this time.”

Tesla

“Investors had their first big disappointment of a US third quarter earnings season which, up until now, had been a qualified success, with Tesla missing expectations on revenue and car sales.

“The electric vehicle manufacturer’s underpowered performance reflects continuing challenges around the supply chain and rising costs. It suggests expectations were pitched too high coming into this quarterly update.

“While these issues should ameliorate over time and demand looks robust, the increased competitive threat as traditional carmakers up their electric vehicle game and new challengers emerge in Asia is more of a concern for Tesla.

“The poor quarterly showing will only add to concerns that Elon Musk is too caught up in his revived takeover of Twitter to lend Tesla the attention it needs.”

Akzo Nobel / Travis Perkins

“After two years of people ploughing money into doing up their home during the various lockdowns, the home improvement sector is starting to show the kind of cracks you might find in a GCSE woodwork project.

“Dulux owner Akzo Nobel could certainly do with a new lick of paint after falling short of third quarter opening profit estimates and withdrawing its earnings guidance for 2023.

“The company, which also owns the Polyfilla and Cuprinol brands, is having a tough time as its product sellers are sitting on too much inventory and demand has weakened from China. When shops have too much inventory, their priority is to run down those stockpiles rather than order in more stock. This translates into reduced demand for new products from the manufacturer.

“Problems are being seen elsewhere in the home improvement sector. We recently saw Marshalls say that demand had fallen for paving stones typically used in residential driveways, and Wickes reported a softening of the DIY market over the summer.

“Two months ago, Travis Perkins warned that its Toolstation power tool and hardware business had seen a big drop in sales. However, Toolstation sales have since started to pick up. It also said third quarter sales across the group were up 7.4% as demand was holding up from larger repair and maintenance contractors.

“With mortgage costs shooting up, there is a fear that activity in the housing market will stall. Traditionally, a key sales catalyst for building products suppliers has been people moving house as they want their new home to look smart. So, while Travis Perkins’ latest update provides some relief that the sector is not grinding to a halt, it is by no means in safe territory.”

Dunelm

“Will there be a soft landing for cushions, curtains and beddings seller Dunelm? The company has done an excellent job in recent years of improving its online retail operation and getting the right mix of quality and value to appeal to shoppers.

“However, what might have seemed good value six or 12 months ago could be beyond the reach of many households now mortgage and energy costs are escalating. The pandemic trend of looking to spruce up a living space in which people had been spending an inordinate amount of time also seems to be well and truly over.

“The good news is that Dunelm’s outlook for the current financial year is unchanged – testament to some impressive resilience. While it pays to be sceptical of businesses attempting to get you to look at anything other than the previous year’s sales as a point of comparison, Dunelm’s sales are well ahead of pre-Covid levels and there’s no doubt pent-up demand helped play a part in its 2021 performance.

“Dunelm, like lots of retailers just now, faces a difficult challenge in terms of how far it is prepared to cut prices to keep the tills ringing. Go too far and margins will be squeezed beyond breaking point, and it might be difficult to push prices back up when the economic backdrop improves.

“One crumb of comfort for Dunelm is that it is doubtless better placed than some of its rivals and could come out the other side of the current turmoil with an improved market share.”

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