FTSE 100 ticks higher ahead of US GDP, Tesla enjoys record quarter, Royal Mail counts the cost of strikes and Jet2 unveils upgrades

“The FTSE 100 continued to edge higher on Thursday morning ahead of US GDP figures out later on,” says AJ Bell Investment Director Russ Mould.

“Asian markets were continuing to make ground as they returned after the Lunar New Year break as optimism over China’s reopening continues to build despite surging Covid cases.

“Booze is supposed to be pretty recession resistant but Diageo sparked some concern from investors, despite an otherwise solid set of first-half results, by reporting slowing growth in its key North American market.

“Wizz Air was punished for adopting a more cautious tone than its competitors on the outlook for the holidays market, helping to bring some sobriety to a share price which had doubled in just three months.”

Tesla

“Tesla’s troubles in recent times have really put the brakes on what had been a rapidly accelerating share price but its latest earnings report has helped charge things up again.

“Posting its best-ever quarterly revenue and profit and beating expectations was always likely to be rewarded by shareholders, and so it proved with the shares making material gains in after-hours trading.

“That’s the good news but there were less positive takeaways from the quarterly earnings. Margins are going to be pressured by the price cuts Tesla has introduced to shore up sales – even if they are expected to remain industry leading. The devil will be in the detail and the market will be watching closely to see just how much profitability Tesla is having to sacrifice to ensure demand holds up.

“It’s good to see the appropriate focus on getting production levels up and seeking to control the costs which are within its compass to control. The company’s hotly anticipated ‘cyber truck’ is on track to start production later this year – an important milestone for the group.

“All in all, this update will have gone some way to reassuring investors concerned about Elon Musk’s focus on and commitment to his main business. Though he still has some way to go to completely erase the memory of his Twitter diversion.”

Royal Mail (International Distributions Services)

“Royal Mail’s nine-month trading update shows the pain inflicted by multiple labour strikes. With consumers and businesses frustrated at delays in their goods reaching their desired locations, many have turned to competitors for more reliable services. Some may never return to Royal Mail.

“The UK operations saw a big decline in parcel and letter volumes in the period, compounding problems in the business. It has guided for full year operating losses in the mid-point of a £350 million to £450 million range and says the strikes have cost it £200 million over the first nine months of its financial year. Parent company International Distributions Services cannot afford to let this problem continue for much longer.

“The overseas operations under the GLS banner in recent years has been the saviour for the group, but the tide also seems to be turning for this division. Volumes and margins have fallen, which perhaps suggests a gloomier economic outlook is having a negative impact on the amount of goods being shipped.

“The company has already declined to pay the half-year dividend and negative free cash flow raises the risk of a full-year dividend also being denied to shareholders. In November, the company said it might try and pay a full-year dividend out of GLS earnings, but that could cause a political storm. International Distribution Services might want to avoid accusations that it isn’t paying workers enough but is still doling out cash to shareholders.

“Despite the negativity surrounding its income and considerable labour disruption, the group says its plan to stabilise the business is making good progress. That might explain the positive share price action in response to the trading update.”

Jet2

“People are still prizing their week in the sun above almost anything else it seems, with airline and package holidays firm Jet2 becoming the latest name in the sector to unveil upgrades.

“The failure of the shares to really take off on what is a really encouraging update reflected a very strong run for the company in recent months, as industry data and its peer group have offered their own encouraging take on demand for holidays.

“Where Jet2 deserves credit is in the way it has treated customers over the last 12 months – not cutting flights at the last minute, doing its best to look after travellers and taking on board extra costs itself.

“This should help make it a trusted brand in the travel space and one people return to again and again. While volatile costs and economic pressures could lead to turbulence in the short term, Jet2 has done a good job of setting itself on an upwards flight path for the long term.”

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