FTSE 100 higher ahead of Fed meeting, GSK lifts forecasts, ASOS still a mess, Next upgrades guidance, WeWork reportedly on brink of bankruptcy and Aston Martin announces DB12 delays

“The FTSE 100 moved higher on Wednesday ahead of the crunch meeting of the US Federal Reserve,” says AJ Bell Investment Director Russ Mould.

“The broad expectation is the Fed will sit on its hands for now, so all the focus is likely to be drawn to any hints dropped about the future direction of monetary policy.

“Given the volatile economic and geopolitical backdrop, Jerome Powell will have to weigh any words in the accompanying statement carefully if he wants to avoid giving investors the jitters.”

GSK

“Among the risers in London was pharmaceutical firm GSK which unveiled a marked increase in its full year guidance after strong sales of its respiratory syncytial virus vaccine.

“GSK has been left in the shadows of its counterpart AstraZeneca – both during Covid when despite its greater vaccine expertise GSK did not have a jab of its own, and in the intervening period. GSK shares are roughly where they were five years ago, whereas AstraZeneca has advanced 80% over the same period.

“It will hope today’s positive update can represent a step towards restoring its fortunes and getting more credit from a sceptical market.”

ASOS

“ASOS is battered and bruised. While the company desperately tries to talk up progress with reshaping the business, the headline numbers for its full-year results tell a different story.

“Sales are down, net debt has ballooned and pre-tax losses have got significantly worse.

“So much for ASOS being a disruptor in the fashion industry – its fifteen minutes of fame have long gone and the business is now having to rethink its strategy.

“Profitability in the new financial year will be negatively affected by ongoing efforts to clear excess stock. Guidance for sales to fall by as much as 15% means ASOS is going to be the walking wounded for some time.

“It’s easy to understand how ASOS got into this mess. Consumer shopping habits have changed – after the heyday of Covid when everyone was ordering goods because they were bored at home, now there is more consideration made to purchases, something that’s been exacerbated by the cost-of-living crisis. Heightened competition from the likes of Shein have also presented shoppers with cheaper alternatives.

“At the same time, ASOS’s cost structure changed primarily due to inflationary pressures which was problematic because it had taken its eye off the ball. The company had been chasing growth at any price and suddenly that business model no longer stacked up.

“So where next? A plan is in place to focus more on profitable sales, but it will take some time to wash out the dregs of its old business model from the system. There is no response to speculation it might sell the Topshop brand, but such a deal would make sense given the circumstances. It could provide a welcome cash injection to help pay down debt.”

Next

“It’s been a turbulent year for retailers thanks to consumers battling high interest rates and, more recently, unusual weather patterns which meant the wrong kind of clothes were on the shelves. For example, t-shirts and summer dresses were less appealing during the cooler than average August, and then retailers’ winter range gathered dust during a warmer than average September.

“Nonetheless, Next has managed to navigate through the challenges and once again has upgraded earnings guidance. Rival retailers will certainly want to know how it has managed to stay above water.

“The latest success can be attributed to online sales, suggesting Next continues to stock what people want and at price point that shoppers deem to be good value for money.

“One of Next’s key attractions is that its clothes are considered to be decent quality. While they may cost more than you might find with ASOS or H&M, there is a perception that the items will last longer and so it is worth paying a bit more.

“Sales have really improved since the weather normalised in mid-October, with temperatures dropping no doubt being the catalyst for people to reach for their phones or laptops to order a new jumper, coat or pair of gloves. The key challenge for Next is to try and maintain recent sales momentum.”

WeWork

“WeWork looks as if it could be coming to a messy end. Its model of taking long-term leases on buildings and renting them out to businesses on a short-term basis was intended to meet demand for more flexible office space and was accompanied by big claims around its use of technology.

“This strategy has left it exposed to any change in market dynamics, and the pandemic and shift to home and now hybrid working have certainly complicated the picture.

“A failed IPO in 2019, the departure of its controversial founder and CEO Adam Neumann, an eventual stock market listing at a much-reduced valuation in 2021, continuing losses and escalating debts have all pointed in one direction.

“Reports suggesting it will file for Chapter 11 bankruptcy can hardly be classed as a big surprise in this context. Its major backer Softbank must have reached a point where it can no longer justify bailing the business out.”

Aston Martin Lagonda

“It may make luxury sports cars but a 2023 recovery in Aston Martin Lagonda’s share price has lost speed with all the grace of an old banger on the way to the scrapyard in recent months.

“The latest disappointment comes as the company downgrades production guidance for its DB12 model thanks to delays in ramping up capacity.

“The company is seeing strong demand but, with losses coming in ahead of expectations, there is little reason for the market to give Aston Martin the benefit of the doubt for even the smallest misstep. For now, little credence is being given to a 2024 forecast for £2 billion in revenue and £500 million in adjusted earnings.

“It is still sitting on a big pile of debt and continues the painful effort of deleveraging a strained balance sheet.

“Undoubtedly, progress has been made in fixing some of the problems faced by the business but it all feels a bit too little too late.

“With the shares trading at a tenth of the level at which they listed in 2018, the optimistic comparisons Aston Martin made for itself with Italian rival Ferrari look as fanciful as they ever did.”

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