FTSE 100 lifted by miners after strong China data, Persimmon points to margin squeeze, Reckitt boosted by strong nutrition and health sales, Aston Martin makes cash flow breakthrough

“Miners helped lead the FTSE 100 higher on the latest Chinese manufacturing data which has positive implications in terms of commodities demand,” says AJ Bell Investment Director Russ Mould.

“Further evidence of the industry’s positive outlook could be found in results from mining services firm Weir which unveiled an impressive increase in its dividend and posted a record order book.

“The strength in resources stocks helped make for a fragile housebuilding sector as Persimmon’s results created a stink and house prices continued to soften in the UK.

“US PMI data for the manufacturing sector later is likely to be closely watched as investors continue to look for a way through recession risks and the implications for interest rates from better-than-expected data.

“Just Eat Takeaway may have grown revenues in 2022, but this reflected higher prices and the volume of orders dropped significantly. As households cut back it could be difficult for the company to maintain its path towards consistent profitability.”

Persimmon

“Welcome to a new era of chaos for the housebuilders. Falling property prices and rising costs means profits are being squeezed and that will cause earnings in the sector to slump.

“Persimmon has already refined its dividend policy in preparation for a housing market downturn and now it provides a crystal-clear message that margins are set to fall which will lead to a decline in profits.

“The company is preparing for the worst and accepts that 2023 will go down in history as a bad year.

“The industry has made the mistake in the past with cutting corners on build quality so there is no chance Persimmon will go down this route, accepting that it’s better to preserve its reputation rather than protect profits.

“It’s right to be cautious as the latest figures from Nationwide show house price growth has turned negative for the first time since June 2020. Higher mortgage costs, worries about job security, pressure on household finances from broader inflation and concerns about the economic outlook have created a cocktail of problems for people looking to move house and that’s caused a ripple effect in the property market. Some have decided not to move, others simply cannot afford to – and ultimately that has a negative impact on property transactions and prices.”

“Investors have been pricing in a sharp downturn in the housing sector for months, but each new data point showing further cracks in the industry has only served to take share prices even lower.”

Reckitt Benckiser

“Big brands still count in the nutrition and health market. That’s the clear message underlined by results from Reckitt where these two areas helped it beat expectations.

“At a time when household budgets are under real pressure, you’d think people would be happy to buy unbranded over-the-counter drugs but products like Nurofen still look to be a winner with consumers.

“The strong infant nutrition sales in the US shouldn’t be counted on long term, as a recall by rival Abbott Laboratories after customers complained of their kids contracting bacterial infections allowed Reckitt to fill the gap. However, lingering brand damage for Abbott could help Reckitt consolidate at least some of these market share gains.

“Reckitt has been able to successfully pass on higher costs and this helped make up for lower sales volumes but it is fast approaching a point where it needs to decide if investors can continue to stomach further increases. Short-term gain could easily turn into long-term pain if it means Reckitt loses share to its rivals.

“This decision will fall to new CEO Nicandro Durante who can at least draw on years of industry experience to help make that call.”

Aston Martin Lagonda

“There’s no question that Aston Martin has been a car crash on the stock market. Shareholders are sitting on eyewatering losses, but there have been some signs recently the luxury car maker is sputtering into life.

“In theory, demand in this part of the market should be insulated from the cost-of-living pressures which are hitting sales of big-ticket items elsewhere. However, Aston Martin’s execution has been about as sure as a learner driver tackling Birmingham’s Spaghetti Junction and rendered comparisons with Italian supercar outfit Ferrari at its IPO somewhat ridiculous.

“In this context performing in line with expectations, even while chalking up a big loss, is enough to draw a warm response from the market. Looking under the bonnet, some of the fine details are encouraging too. The company is finally delivering some growth; it finished the year by generating free cash flow and it has improved margins.

“The company is at least trying to get things moving in the right direction, investing in new vehicles to help capitalise on what is still a brand with wide appeal among motorheads.”

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