Oil price surge boosts FTSE 100, BHP beats expectations, shares crash in Temu-owner PDD, Bunzl boosted by bumper buyback and Ocado enjoys Australian success

“The FTSE 100 got off to a strong post-Bank Holiday start, lifted by its healthy contingent of resources companies,” says AJ Bell Investment Director Russ Mould.

“Index heavyweights BP and Shell were higher as heightened tensions between Israel and Lebanese militant group Hezbollah, along with outages in Libya, saw oil prices surge back above $80 per barrel. Commodities traders will be watching closely to see if the apparent step back from the brink by both parties holds for now.

“This week is likely to be dominated by Nvidia results and a second estimate of US second-quarter GDP. Federal Reserve chair Jerome Powell’s virtual confirmation there will be a rate cut at the next meeting in September means the debate now is whether it will be a 25-basis point or 50-basis point cut.”

BHP

“Having failed in its attempt to capture Anglo American, BHP is now focused on growing its copper production the hard way – i.e., organically. Over time this may prove a better strategy if the company can increase output in the metal at pace to meet growing demand linked to the energy transition – where copper’s conductive qualities are likely to be in heavy demand.

“BHP posted better-than-expected numbers but also flagged an uneven recovery in China, which is key to demand for the company’s iron ore.”

PDD

“China’s PDD was meant to have been the untouchable e-commerce retailer, cleaning up its local market via the Pinduoduo brand and using its Temu platform as the international growth vehicle for the business. Offering discounted goods at rock-bottom prices has worked as a strategy up until now.

“The group’s stellar run has come to a crashing halt. There is a perfect storm of uncertain economic conditions, cautious consumers and competitive pressures. It suggests that even bargain basement operators can struggle if consumers are thinking hard about where they spend money.

“The market has been caught out by weaker than expected results from PDD and gloomy comments from management. It looks like consumers are being even more cautious about spending and perhaps realising they don’t need to fill their house with oodles of cheap products. They would rather spend money on experiences than tat.

“Temu might have cracked the formula for engaging and persuasive advertising on social media, but there is a point where consumers feel overwhelmed by the constant sales pitches.

“In China, the country’s post-pandemic economic recovery continues to be patchy and that creates a particularly difficult environment for the Pinduoduo brand to prosper. In a market where everyone is working hard to get consumers to part with their cash, it’s natural to see widespread promotions and that’s prompted rivals like JD.com and Alibaba to go down this road.

“The sharp fall in PDD’s share price will prompt the market to reappraise the business. The latest results are a reminder that even the most successful companies cannot maintain very high levels of growth forever.”

Bunzl

“Renowned as being one of the more mundane businesses on the UK market, Bunzl’s results have excited investors and reminded them that boring can be best sometimes. The company has announced a bumper buyback and unveiled a double-digit increase in its dividend.

“This might seem somewhat at odds with its first-half results which saw revenue decline modestly, however this headline obscures a recent pick-up in performance not just in the latter part of the first six months of the year but also in the weeks since. The operating margin is also up and cash generation is reliably strong.

“Bunzl supplies things that companies need to do business but do not actually sell to customers, such as takeaway cups for coffee shops or door mats for hotels and offices.

“Acquisitions have always been a significant component of Bunzl’s growth strategy and the company’s latest deal, its eighth of the year, takes its 2024 spending to £650 million.

“Individually, these are not huge transactions but easier to swallow purchases which the company has demonstrated over time it can bring into the Bunzl fold without major disruption to the wider group.”

Ocado

“After client setbacks in the US and Canada, Ocado will be relieved that expansion plans in Australia have proceeded without hiccups.

“The rollout of new warehouses with Coles in Australia is exactly the good news Ocado needs, given the volatile nature of its announcements this year. Just as North American partners rethink their plans to boost capacity to support online groceries, Ocado is still making progress in other parts of the world.

“Going live in Australia and having recently strengthened relationships in Japan means that Ocado is not quite the disaster so many people imply it is.”

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