Interactive Investor

Shares round-up: Frasers Group, AO World, Vertu Motors

20th August 2020 15:16

Graeme Evans from interactive investor


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City impressed by latest trading updates from the sports and electrical goods retailers.

Retail entrepreneurs Mike Ashley and John Roberts saw their personal fortunes enhanced today when trading updates from Frasers Group (LSE:FRAS)and AO World (LSE:AO.) impressed the City.

The Sports Direct, Evans Cycles and department store owner Frasers led the FTSE 250 index with a surge of 13%, while online electricals retailer and fellow second-tier stock AO was 3% higher during an otherwise downbeat session for investors.

The FTSE 100 index slid 1%, with Antofagasta the biggest faller after the Chile-focused copper miner followed industry giants BHP (LSE:BHP) and Glencore (LSE:GLEN) in cutting its dividend. The smaller award reflected a 15% slide in half-year revenues, driven by a sharp drop in the price of copper.

Even though Antofagasta (LSE:ANTO) maintained its copper production guidance, shares surrendered some of their recent gains through a 6% fall that also dragged Anglo American (LSE:AAL) and EVRAZ (LSE:EVR) more than 3% lower. Big fallers in the FTSE 250 included transport groups National Express (LSE:NEX) and FirstGroup (LSE:FGP) after declines of 4%, while Aston Martin Lagonda (LSE:AML) reversed 9%. 

The rise for Frasers Group (LSE:FRAS), which used to be known as Sports Direct International, came after it backed itself to achieve between a 10% and 30% improvement in underlying earnings before interest, tax, depreciation and amortisation in the 2021 financial year.

 The equivalent figure in today's annual results was 5% higher at £302.1 million, with optimism for this year fuelled by a recent surge in online sales as more people cycle and exercise in the wake of the Covid-19 lockdown.

The group, which is 64% owned by founder and chief executive Mike Ashley, wants to invest more than £100 million in its “elevation” strategy, with a particular focus on customer experience and the continued growth online.

At AO World (LSE:AO.), shares were boosted by evidence that recent strong demand for its products and services had continued despite the re-opening of competitor stores at the start of July.

Revenues in the UK for the four months to the end of last month were £401.3 million, leading to year-on-year growth of 58.9%. Analysts at Numis Securities raised their 2021 forecasts and said they were now looking for 40% revenue growth in the UK across the year, with 35% in Europe.

They added:

“Our outer year forecasts rise more modestly, but growing evidence in sustained customer acquisition, retention and channel shift gives reason to hope for further momentum despite the macro driven demand risk.”

Numis has a ‘buy’ recommendation and price target of 235p, which compares with a level of just below 200p today. The stock had been languishing at 50p in April, before soaring in value after trading was boosted by strong demand during the pandemic lockdown.

Roberts is confident that recent trading points to a structural shift in customer behaviour, highlighting a need for the Bolton-based company to boost capacity and capability.

The chief executive has backed up his words with a number of AO share purchases in recent months, meaning that the former kitchen salesman is now interested in 22.8% of the company he co-founded in 2000.

An employee incentive scheme that will reward the company's 3,000 staff should the share price go above 523p — equivalent to a market capitalisation of £2.5 billion — also demonstrates how far AO's board think the business can go.

Better-than-expected trading has also boosted car dealership Vertu Motors (LSE:VTU), whose AIM-listed shares jumped 10% to 23.9p. The company behind the brands Bristol Street Motors, Farnell and Macklin Motors said it was in a significantly better position than it had anticipated during the lockdown, both in terms of profitability and cash flow generation.

It said that new car orders for the crucial registration plate month of September were currently running 20% ahead of last year, while like-for-like volumes in used cars rose 13.7% in July.

Chief executive Robert Forrester says:

“July trading continued the trends seen in June and was significantly stronger than both what we envisaged and the group’s original business plan for the month.”

Vertu, which incurred losses of £20 million in April and May after being forced to close its 133 sales outlets during the lockdown, looks better equipped than most to weather the current uncertainty. It is also seen by analysts as the most likely to lead the consolidation of the sector, with Lookers one potential target following its recent accounting difficulties.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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