FTSE up, risk-on mood for markets, Pearson fails to impress, Costco hit and Rightmove does not expect big impact from property downturn

“A sea of green greeted the main European indices on Friday including a 0.3% rise in the FTSE 100 and a 0.7% advance in the Dax. It was certainly a ‘risk-on’ day for UK equities, with the likes of Ocado and Scottish Mortgage Investment Trust among the top risers. Miners and packaging companies were also in demand, implying that investors continue to find reasons to stay optimistic despite patchy economic conditions,” says Russ Mould, Investment Director at AJ Bell.

“Education group Pearson has made a remarkable turnaround after years of being in the doldrums. Its second year in a row of better-than-expected financial results shows its repair job wasn’t a quick plaster on the wound.

“There are many moving parts to the business and not everything is doing well, which implies management has to study harder to find solutions to get the company firing on all cylinders. The shares have had a great run, up 44% over the past 12 months, but there wasn’t enough in the latest results to sustain that momentum and so the stock slipped amid investors taking profits.

“Costco’s shares fell in after-hours trading in the US last night after its quarterly earnings disappointed. Seen as a potential beneficiary of the cost-of-living crisis as people search for bargains, the wholesaler is in theory well placed to pick up more business thanks to its ability to offer low prices on a limited range of products.

“Unfortunately, consumers are watching their pennies more than ever and bigger ticket items are not on the menu for many people, which has been the source of Costco’s latest problems.”

Rightmove

“It’s quite something for a property listings site to argue it is not expecting to be unduly affected by turmoil in the housing market. This confidence is based on Rightmove’s business model which is based on charging subscriptions to housebuilders and estate agents rather than having any link to the number of transactions or the price they take place at.

“As long as there isn’t a crash which takes a lot of agents out of the market, Rightmove should do OK and it has done so in previous market downturns.

“There is an argument that in a tougher market, the product becomes even more precious given Rightmove has the most listings and therefore is the one people automatically go to when looking for their next home. Using Rightmove’s services enables hard-pressed agents to get their listing in front of the largest audience possible.

“Attempts to unseat Rightmove’s dominant market position have largely failed, although there have been loud complaints about it squeezing more and more out of its customer base and its attempts to push through more price increases at a time of rising costs elsewhere are likely to draw more protests.

“It certainly seems possible that Rightmove will struggle to upsell clients to premium packages and this could have an impact on margins in 2023.”

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