“Having broken its run of record closes on Tuesday, the FTSE 100 ticked higher on Wednesday morning despite selling on Wall Street overnight,” says AJ Bell Investment Director Russ Mould.
“It’s decision day on interest rates in the US and while the Federal Reserve is almost certain to stick with the status quo, there will be considerable interest in the accompanying commentary. Will markets have to get used to the idea of zero cuts in 2024, having started the year with hopes for rates to be materially lowered?
“House prices in the UK fell for a second month – demonstrating how the pushing back of rate cut expectations is having a real-world impact as mortgage rates tick higher.
“GSK has been left in the shade by its UK counterpart AstraZeneca but its first quarter beat is a step on the road to closing the gap with evidence that CEO Emma Walmsley’s strategy of focusing on vaccines and treatments for infectious diseases is paying off.
“However, excitement may be slightly tempered given the company expects a stronger first half than second half.”
Amazon
“For years, Amazon was all about a land grab, dominating the retail sector with the goal of establishing a massive customer base and thinking about profitability later on. It ploughed any money back into the business to support growth. That hard work has paid off, allowing it to become a major force not only in retail but also in cloud computing and other areas.
“Amazon is now a gigantic profit machine. It has always taken the view that you have to spend money to make money and now it is churning out the cash, with plenty left over to pursue new opportunities and fund share buybacks. It’s this situation which has left some investors perplexed.
“With Meta and Alphabet both recently declaring their first ever dividend as they mature into vast tech beasts, Amazon has not gone down the same path, much to investors’ disappointment.
“Even analysts pointed out on the results conference call that the company’s strategic plans should lead to a significant boost in cash flow. So, where are the dividends? Chief financial officer Brian Olsavsky didn’t want to get drawn into the debate, merely commenting that in the near term, investing in the business and paying down debt was the priority. While that seems logical, some investors will feel hard done by.
“Dividends aside, the latest results were a shining example of what Amazon is capable of achieving. Sales, profit and cash flow continue to build, delivery is getting faster for its retail arm which is a key differentiator for the company versus competitors, and the introduction of advertising on its streaming platform provides another revenue growth lever.
“The all-important artificial intelligence theme got its moment in the sun via the widespread launch of Amazon Q, a generative AI-powered assistant for accelerating software development and leveraging companies’ internal data
“Apart from the lack of a dividend, Amazon delivered a lot of good news for investors. But it always has a high bar to clear thanks to lofty market expectations. People expect Amazon to be flawless every quarter and sometimes a barrel of good news will never be enough. A 1.2% rise in pre-market trading is the market’s way of shrugging its shoulders at the results.”
Domino's Pizza
“While there are only so many ways to dress up a pizza, Domino’s continues to find new ways to evolve both on the product basis and strategically. Whether it is making the right moves is still to be seen.
“Investors didn’t think much of the first quarter update, depressed by a miserable showing in January, although that was already communicated to the market in March. What’s also annoyed investors is a slow start to the second quarter, with Domino’s blaming tough comparative figures to beat.
“The launch of £4 lunch deals implies it is going head-to-head with the likes of Greggs, Tesco and Marks & Spencer for the lunch crowd. A hungry individual might give it a go once or twice, but the proposition doesn’t seem like something which could lure in repeat customers multiple times a week in the way an office worker would nip out to the shops for a sandwich.
“While it’s clever to fill wraps with existing ingredients used for pizzas, Domino’s is not going to win any culinary awards or appeal to a growing crowd of people paying more attention to health and wellness – even if it is pitching them as lower calorie meals.
“Domino’s has historically done well when there are big sporting events as friends sit at home to enjoy the spectacle with a few drinks and a pizza. The Euro football championship in June is therefore a welcome potential sales catalyst for the group – but without it, one has to wonder if Domino’s would be facing an uphill battle for sales growth given the uneven performance so far this year.”
Next
“Next may have started the year with unusual exuberance for a firm which is typically conservative in its messaging, but it has reverted to type with its first-quarter trading update.
“While sales in the first three months of the year came in a smidge ahead of expectations, the company is not changing its full-year guidance and is expecting a year-on-year drop-off in the second quarter given warm weather in May and June 2023 pushed sales of t-shirts, shorts and summer dresses.
“Time will tell if this is the company employing its usual under-promise, over-deliver playbook or if Next will genuinely find the going a bit tougher as the year goes on.
“Regardless, Next remains one of the best-in-class retailers in the UK with investors now looking to see if the company can deliver on overseas expansion as well as bringing new brands on to its third-party online marketplace.
“These are the next levers of growth for a business which has largely conquered the world of high street fashion in its domestic market as weaker rivals slip away.”
Aston Martin Lagonda
“Luxury car manufacturer Aston Martin has been sent to the stock market equivalent of the scrapyard after struggling to kick into gear. The company has reported a doubling of losses in the first quarter and missed expectations across the board – including on volumes.
“Aston Martin has stopped production on some of its core models ahead of the launch of a new range of vehicles which the company expects to power growth in the second half of this year and beyond, but there is little reason for investors to place any faith in this strategy.
“The company’s valuation is a fraction of what it was when it listed back in 2018, rendering initial comparisons with Ferrari as ridiculous as setting a park jogger up against an Olympic middle-distance runner.
“Despite a recent refinancing, Aston Martin is still burdened with a hefty debt pile and it’s likely in the last chance saloon at this point. If the new launches don’t go well it’s hard to see what road the business can take next.”
These articles are for information purposes only and are not a personal recommendation or advice.
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