Daily market update: Raspberry Pi, Vistry, ASOS, On The Beach

The FTSE 100 ticked up after yesterday’s renewed surge in oil prices above $100 per barrel.

BP and Shell were among the names making progress in London, along with more traditionally defensive stocks. Housebuilders, aviation-linked names and financials were among those losing ground in early trading.

This followed a sell-off on Wall Street last night and mixed trading in Asian markets ahead of a planned meeting between President Trump and Chinese premier Xi Jinping.

Government bond yields moved higher on the stronger oil price, which followed an uncompromising speech by Iran’s president, Masoud Pezeshkian, to the UN General Assembly that raised doubts about diplomatic progress between Washington and Tehran.

Raspberry Pi

The UK market is often denigrated for its lack of technology companies, but Raspberry Pi’s latest results are a reminder there are some notable exceptions. This business increasingly looks like an AI winner, rather than a victim of AI disruption.

Raspberry Pi has moved beyond a world of hobbyists and educators looking for cheap computing tools. It is now seeing growing use by industrial customers and other businesses, particularly in AI applications which run directly on devices rather than through data centres.

The company’s record-breaking first-half results saw revenue surge 90% and profit more than treble as some forward planning in procurement paid off in spades for the business.

Raspberry Pi had built up a significant inventory of memory chips which not only helped protect it from the big price increases for these components in recent months but also insulated it from supply shortages in this area. This meant it could grab market share from competitors who weren’t as well prepared.

While rising input costs are likely to have more of an impact in the second half of the year, as Raspberry Pi has worked through its inventory the company has still upgraded full-year earnings guidance and is reinforcing its supply chain to help it fulfil future demand.

Vistry

News of a strategic review would have been ringing alarm bells for beleaguered Vistry shareholders and, sure enough, one of the outcomes of said review is a chunky profit warning.

Having posted a hefty first-half loss, the company has lowered full-year profit expectations as it plans to substantially downsize the business and makes significant provisions for the costs of restructuring.

The positive news is that recently appointed boss Adam Daniels is grasping the nettle with both hands as he looks to right a business which has been suffering badly from stock market subsidence in recent years. Vistry has been hit by cracks in the foundations of its regeneration and social housing focused model and due to accounting failures in its Southern division. Balance sheet concerns have added to the mix of late, too.

The problem for Daniels is that he is not fixing the roof while the sun is shining but instead when it is pouring with rain, thanks to rising costs and a struggling property market affected by rising borrowing costs.

One bright spot amid the gloom is the recent award of funds under the UK government’s affordable housing scheme, which represented a show of faith in the business.

ASOS

ASOS is getting its act together after a lengthy turnaround programme. Its latest trading update reassures on many counts, including adjusted earnings above the midpoint of its guided range and better than expected gross margins.

It has reached a turning point where the narrative is no longer about simply keeping the lights on. ASOS is taking the front foot with the next phase which is growing the business again.

Helping its cause has been the ability for customers to shop from a wide range of brands, effectively positioning ASOS as a marketplace portal. It’s not unique in doing this, but the key to greater success has been making the shopping experience smoother.

For a relatively small annual fee, customers can get swift delivery which matters to a lot of people. Equally, getting heavy with customers who take the mick with excessive amounts of returns is also paying off, as imposing a charge to send back goods once shoppers hit a certain threshold also appears to be acting as a deterrent. Returns are the bane of online retailers’ lives as they’re costly to process, and ASOS has now flagged a lower returns rate.

On The Beach

On The Beach’s trading update is a pleasant surprise given the significant headwinds that have knocked the holiday and travel industry for six this year.

Despite the Middle East conflict causing disruption to travel networks and a higher oil price pushing up transport costs, On The Beach has still managed to grow annual profits by a decent chunk, according to its earnings guidance. The fact its bookings growth is significantly ahead of the wider travel market suggests On The Beach has hit upon the right formula for success.

The public typically value foreign holidays highly and are prepared to make cutbacks elsewhere to get their week in the sun. But the holidays industry is highly competitive and choice is plentiful, meaning holiday sellers must stand out from the crowd to be a winner.

AO

The market is disappointed that AO has not upgraded earnings guidance despite having a good first-half period. It is facing tough comparative figures to beat in the second half.

Investors might question the acquisition of camera retailer Jessops. Once a popular name on the high street, the photography expert has struggled as people are now able to take much better quality pictures on their mobile phones – thereby dampening demand for standalone cameras.

The rise of social media has improved the company’s prospects. It has driven demand for vlogging devices and compact cameras are coming back into fashion, both of which suggest a new lease of life for Jessops.

AO is no stranger to buying companies that are seemingly on their knees. It bought tech trade-in group MusicMagpie which plays to its existing strengths in tech refurbishment. The key is proving to the market that these acquisitions aren’t wasted money.