“There was no rebound of any substance in European markets after yesterday’s washout session,” says Russ Mould, Investment Director at AJ Bell.
“The main indices saw small gains, but nothing to write home about. That said, a sense of calm is still welcome following heightened volatility.
“The FTSE 100 nudged up 0.1% to 7,829 with mining stocks doing their very best to recharge the market.
“UK inflation is coming down but March’s figure of 3.2% was slightly above analyst expectations for 3.1%. That’s only a minor difference and not enough to trouble the markets. The key takeaway is that inflation continues to edge towards to the Bank of England’s 2% target and the closer it gets, the more comfortable the market will feel about interest rates being cut.”
ASML
“The big story in mainland Europe was ASML whose shares fell 5% after sales came in below forecast. The company supplies equipment to chip makers and flagged weaker-than-expected first-quarter new bookings.
“ASML’s equipment is very expensive and it’s common to see swings in sales on a quarterly basis as it is a highly considered purchase and not a low-price, high-volume product which is constantly ordered.
“While the latest results have spooked the market, ASML insists its full year outlook is unchanged and it is sticking with the belief that the chip industry will improve as 2024 progresses. There is some reassurance in that statement but expect investors to be more nervous towards the stock until it next reports, for fear of repeat setbacks.”
ASOS
“The main thing that currently matters with ASOS is clearing its mountain of excess stock, a ball and chain that’s been dragging the business down for a long time. It’s ahead of plan on this front, hence the share price has enjoyed a pop.
“Naturally, having to flog old stock means selling at a discount and that eats into profit margins. It’s all well and good to run the stockpile down but that also fosters a nasty habit of customers getting used to very cheap prices. Weaning them off the habit will be hard and could be as big a hurdle to clear as the current excess inventory problem.
“The company might give the impression it is getting back on track, but the numbers tell a different story.
“Half-year sales were down 18%, active customers fell by 14% and the average order frequency declined by 8.1%. Those are some seriously bad numbers and beg the question why the nation has fallen so out of love with ASOS.
“More choice is one factor as rival names like Shein continue to take market share, consumers watching their pennies is another, but there must also be an element of ASOS offering products that simply don’t resonate with its customer base.”
Just Eat Takeaway
“The UK and northern Europe still seem attached to the takeaway habit but elsewhere people seem a bit more cautious about splashing out, based on Just Eat Takeaway’s first quarter numbers.
“While the company is sticking to guidance for now, the drop in transaction values and order numbers is creating some nervousness in the market with sluggish trading in the US, southern Europe and Down Under.
“Just Eat’s US-based subsidiary Grubhub is the black sheep in its family of brands and the company is looking at options to sell some or all of it.
“The $7.3 billion deal to acquire Grubhub back in 2021 looks increasingly ill-timed and the company is unlikely to achieve anything like that price tag for the business now.
“The company already reports ex-North America figures but until it can secure an exit then the market is likely to judge the group in the round and that includes its operations across the Atlantic.
“More broadly, the company continues to face strong competition in most of its markets for a consumer whose spending power is substantially reduced.”
Entain
“Regulatory pressures are a fact of life for the gambling sector and the direction of travel is only going one way – particularly domestically. This message comes across loud and clear in Entain’s latest trading update.
“The Ladbrokes owner counted the significant cost of betting regulations in the UK and Ireland. While the US has been seen as the golden goose, there are signs of slowing growth in its Bet MGM joint venture as competitive pressures ramp up.
“The company needs to demonstrate it can hold on to and build market share across the pond and return its UK business to growth in 2025 to reassure investors. One positive is the signs of improvement in Entain’s online operation.
“There has been speculation the company might look to streamline its operations by selling off some of its international brands although any radical shake-up of the business will likely have to wait until the company appoints a permanent CEO to take over from interim chief executive, Stella David.
“An appointment is thought to be imminent and whoever assumes the top job will face a full in-tray from day one.”
These articles are for information purposes only and are not a personal recommendation or advice.