Markets flat, Capita shares jump on cost saving plan, CRH in $2.1 billion US deal and AO World lifts guidance

“A decent showing on Wall Street last night has not extended to Europe or Asia on Tuesday, with the FTSE 100, Dax, CAC 40, Nikkei 225 and Hang Seng only showing minimal change on the day. Investors are likely to be taking stock of events and thinking about where markets might go next year,” says Russ Mould, Investment Director at AJ Bell.

“The narrative has shifted from how fast interest rates could go up to now focusing on when rates might start to go down. Smaller companies have perked up on the market in recent weeks, alongside long duration investments such as infrastructure and property funds, which implies a slight shift in investor thinking. However, these are bouncing off a low base and it is too early to proclaim any definitive market rotation.

“Among UK stocks issuing updates, shares in outsourcing group Capita jumped 9% after the company said it would accelerate the delivery of efficiency savings. Good news for shareholders as it should benefit the company’s profit margins but bad news for 900 employees of Capita who face potential redundancy.”

CRH

“CRH’s stars are aligning, with the construction group busy making a chunky acquisition soon after shifting its main stock market listing from London to the US. The latter move was a blow to London as a listing venue given CRH was a member of the prestigious FTSE 100 index.

“The company previously argued the listing switch came with multiple benefits. Given it generates a large chunk of its earnings in the US, having a primary listing in the country and representing itself as an American business would, in theory, make it more visible to investors and to existing and potential clients.

“It is chasing opportunities linked to large US government spending programmes and has wasted no time in making a corporate acquisition to strengthen its position in the market. Paying $2.1 billion in cash for assets from Martin Marietta makes strategic sense as it increases CRH’s position in Texas, one of the high growth markets for construction work in the US.”

AO World

“After a tumultuous period, there were some reassuring signs of stability for online consumer electronics outfit AO World in its latest results. The upgrade to full-year guidance will take the headlines but it is underpinned by a return to profit, improved margin and better cash generation.

“AO did well during the pandemic when people had the means and motivation to upgrade their appliances as they spent more time at home.

“This drove the shares to highs above £4 but the excitement proved short-lived, and coming out of the pandemic inflationary pressures and tight household budgets meant AO was confronted with a toxic mix of weaker demand and higher costs.

“The company has worked hard in the interim to reduce its cost base and has started charging on all deliveries – not the most consumer-friendly move but probably a sensible decision given somebody spending a few hundred pounds on a new washing machine is unlikely to baulk at a bit on top to get the item delivered to their door.

“The trade-off is a reduction in revenue, suggesting AO has surrendered some market share as it looks to improve its profitability. It has to be careful to get this balance right or it could see competitors eating more of its lunch.”

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