ASOS and Kier

“Markets around the world were fairly steady on Tuesday as investors await updates later this week from the US Federal Reserve and, to a lesser extent, the Bank of England. A handful of retail and mining stocks helped to give the FTSE 100 a small lift, rising 0.1% to 7,308,” says Russ Mould, Investment Director at AJ Bell.

ASOS

“Life remains tough for online retailer ASOS with second quarter numbers missing expectations on several metrics. The amount of sales and the pace of sales growth are both behind analyst forecasts for the period partially as a result of difficult trading in France and Germany and disruption to US operations.

“One could shrug these off as growing pains as the business tries to increase scale on an international basis. However, ASOS is already considered to be an established company in many circles and so some observers may not be so lenient when judging its performance.

“On the face of it, online fashion retail is a very competitive marketplace. ASOS isn’t really doing anything unique versus its rivals and many people underestimate the fact that e-commerce can be a costly business with ongoing investment needed in technology, distribution and logistics.

“ASOS is a fairly low margin business and so it cannot afford any hiccups along the way. For it to win at this game ASOS needs its warehouses running near to full capacity and smoothly in order to benefit from economies of scale. Its products need to stay relevant to fashion trends and it needs to excel at customer service given how many people return goods bought online.”

Kier

“Construction outsourcing firm Kier really needs a steady hand to guide it through some choppy waters.

“The departure of Haydn Mursell earlier this year, under shareholder pressure, had left a vacuum and Kier will be hoping newly appointed CEO Andrew Davies is the man to fill it.

“He’s clearly unafraid of a challenge, having accepting the top job at Carillion in October 2017 but seeing the company go bust before he took up the reins.

“His initial plan for Kier sounds simple on paper but could well be tricky to execute. The focus looks set to be on increasing cash flow, reducing net debt and simplifying the business. Yet borrowings were recently revised upwards, and the company completed a poorly received rights issue back in December.

“Davies looks well qualified as he previously headed up Kier’s family-owned peer Wates Group, winning awards along the way, and previously spent decades at industrial heavyweight BAE Systems.

“He may find running a public company a different level of challenge, with the extra responsibilities of dealing with the City and managing the market’s expectations.”

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