European stocks muted as Fed hits pause, new boss for Legal & General, ASOS recovery takes shape, WE Soda abandons London IPO

“The Fed’s decision to pause rates overnight was not unwelcome to markets but also not a surprise and that is reflected in the muted performance of European stocks this morning,” says AJ Bell Investment Director Russ Mould.

“The London market may still be feeling a little bruised by the decision of soda ash producer WE Soda to pull its planned IPO. The market’s prestige has already been rocked by a series of companies moving their primary listings elsewhere or opting for another market in the first place.

“WE Soda’s move just adds to the impression of a moribund market in a state of decline, like a once gleaming mansion which is becoming hollowed out and decrepit.

“The new boss at Legal & General has a hard act to follow. Since Nigel Wilson was appointed to the top job in June 2012, Legal & General shares have outperformed its life insurance peers, Aviva and Prudential, to chalk up a total return of more than 200%.

“Wilson didn’t necessarily make a big splash but was busy in the background, turning Legal & General into a more focused and efficient business.

“This could provide his successor, Antonio Simoes, with the opportunity to take Wilson’s approach of focusing on long-term assets and so-called ‘inclusive capitalism’ to another level, but that comes with uncertainty too after more than a decade of leadership continuity.

“The initial market reaction betrays at least some investor nervousness, even though Wilson will stay on board until January to help smooth the succession.”

ASOS

“ASOS is taking a ‘shrink to be better’ approach and a return to profitability would suggest its recovery efforts are finally paying off.

“Its old model was go-go growth, trying to amass as many customers as possible and using massive discounts to drive sales volumes.

“A shift in the market environment, partly driven by cost pressures and a revival in consumers going to physical shops, has meant online retailers like ASOS have had to rethink their model and focus on quality of sales over quantity.

“ASOS has been sitting on significant amounts of stock that it needs to clear before inventory levels fall to desired levels. This is still playing out, which means its new strategy is a slow burner rather than turning a light switch on and everything changing in an instant.

“A plan to sit on less stock, improve gross margins through better sourcing, buying and pricing, and not have so many discounts seem like obvious business practices. Why has it taken so long to decide this strategy? Rather than dwell on the past, the focus is on where the business can go next.

“Green shoots of recovery could be the trigger for renewed takeover chatter as the recent progress helps to lower the risks of the equity story, yet the valuation of the company is still cheap should someone be prepared to look through near-term pains and focus on the longer-term opportunity.”

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