FTSE shrugs off sell-off in US and Asia, Next raises guidance despite challenges and SSP’s earnings recovery is still a long way off

“If investing is often about climbing a wall of worry, then market participants arguably face the equivalent of the Matterhorn right now but on Wednesday investors seemed to be undaunted,” says Russ Mould, Investment Director at AJ Bell.

“Despite a big sell-off in Asia and the US overnight, with tech stocks leading the way down, the FTSE 100 was off to a solid start.

“The global energy crisis is really just the latest manifestation of a wider shortage of stuff as demand has flooded back in the wake of the pandemic.

“Then you have specific pressure points like the crisis around Chinese property developer Evergrande and the latest in what feels like a series of periodic battles over the debt ceiling in the US.

“Against this uncertain backdrop central banks are having to weigh up inflation risks which, like chewing gum on the sole of a shoe, are proving stickier than they’d hoped.

“To counter the threat posed by rising prices they face the prospect of dialling down economic support at a time of mounting uncertainty over the recovery.”

Next

“The latest results from Next are a good indication of the headwinds the retail sector is facing at present.

“Next is a best-in-class UK retailer so if even it is struggling to navigate staffing and supply chain issues then you know its peers will be really under the pump.

“The company is also very upfront with its guidance, so you know you are getting an unfiltered version of events.

“Trading may have been better than expected in recent months, supporting an increase in full year guidance, but the company is clear on the risks it faces heading into the key Christmas trading period.

“While Lord Wolfson and the rest of the senior management at Next do have a useful habit of painting a pretty dark picture for investors only for the reality to be a lot sunnier, the view that sales are being artificially inflated by pent-up spending and people not being able to use their money for overseas holidays seems a reasonable one.

“Next was quick to repay the Government support it benefited from during the pandemic. It is no stranger to self-reliance, so its call for a relaxation of immigration rules to address a shortage of workers and HGV drivers carries weight.

“Regardless of the immediate challenges, Next’s exceptional retail skills are likely to see it emerge from potentially a difficult few months’ trading in an even stronger market position.”

SSP

“Serving snacks and drinks to people travelling on planes and trains may seem like a steady business but SSP has been knocked for six by the pandemic.

“While so many companies now have Covid in the rear-view mirror and are pressing ahead with expansion plans, SSP is still in the middle of its recovery phase. Even though progress is being made, it might be a long time before its profits are back to pre-pandemic levels.

“There is strong demand from domestic travellers rather than international and business. That makes sense given the ongoing travel restrictions between many countries and, for the latter, the fact that businesses are questioning the need to spend as much on travel as pre-Covid given the efficiency of meetings via Zoom or Teams.

“SSP’s recovery is certainly not firing on all cylinders as countries with slower vaccine rollouts are generally seeing slow travel activity which creates an uneven backdrop for the company.

“That means there is a lot of pressure on SSP to keep a lid on costs and manage cash flow carefully, given how its recovery story remains fragile. The uneven flow of revenue is one thing to manage, yet SSP must also contend with higher input cost inflation and struggles of finding enough workers among other factors.”

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