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Home / Blog / blog / Traders Corner || Job cuts spark share price fear; British Brand falls out of fashion || 21/02/2020

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Traders Corner || Job cuts spark share price fear; British Brand falls out of fashion || 21/02/2020

Beleaguered fashion and homewares retailer, Laura Ashley, saw its share price slide by 40 per cent this week after it admitted it was looking for an emergency injection of funds. Its stock has shot up again now by just over 18 per cent, now standing at 2.10p, after its majority shareholder Malaysian group MUI, agreed a loan deal with Wells Fargo.

The fashion brand has weathered turbulent times in recent years struggling to stay relevant against more contemporary rivals. In December, Laura Ashley announced it would close 40 stores and it revealed its half-year losses had risen from £1.5 million to £4 million and its like for like sales were down by 10 per cent. But despite the rescue deal, and the appointment of Katherine Poulter as its new Chief Operating Officer, some are still doubting the brand’s ability to stay afloat. Analysts at AJ Bell pointed out that to get back on track, Laura Ashley needs to “fix the funding problem hanging over the business, improve its service and make sure customers not only want to buy the products but also do so via any channel they want.”

Chairman, Andrew Khoo, said Brexit, higher costs and a raise in minimum wage had all impacted on the firm’s results but critics are concerned the brand has just become outdated. Khoo went on to say that a strategic review is underway, and the homeware and fashion retailer intends to improve its product choice and boost digital operations but whether that will be enough to turnaround its fortunes remains to be seen.

Guarantor loans specialist, Amigo, enjoyed a 10 per cent share price spike this week, bringing its price up to 51.60p after it disclosed it had received ‘several indications of interest’ since it launched its formal sale process. The loans company, which has carved a niche offering loans to high-risk individuals if they could provide a guarantor, hit trouble last year when its biggest shareholder decided to sell its 60.66 per cent stake. The stock had plummeted 77 per cent in the past year, leading to Amigo putting itself up for sale, but does this latest upswing mean it could be time to buy? Opinions are divided on this one – while some have pointed out that the firm’s business model looks like it needs a shake-up, others have highlighted its price to earnings ratio of just 3.5 on forecasts to March 2020 which could suggest potential growth.

Banking giant, HSBC saw its share price slump by six per cent in the wake of the news that it will slash 35,000 jobs as part of its latest restructuring plan.

The bank revealed that while its underlying revenue had risen 5.9 per cent to $55.4 bn, reported profit had fallen 32.9 per cent, thanks to $7.3 bn of write-downs.

So, what do the job losses mean in the longer term – is it just a blip of should investors be worried? Interim CEO, Noel Quinn, is leading a restructure of the banking group which along with the job cuts involves a shift from underperforming operations in Europe and the US towards the Middle East and Asia. Quinn also wants to focus on making savings through digitisation and integrating private banking into the wider retail banking landscape. The ambitious restructuring plan is likely to cost around $7.2 bn across 2020 and 2021, which has led to suspension of the firm’s share buyback plan.

Some analysts have raised concerns that in the short-term, increasing its Asian market focus will make HSBC especially vulnerable to headwinds such as the China and US trade dispute and the coronavirus outbreak. Hargreaves Lansdowne also highlighted that once HSBC has extracted capital from Europe and the US, it needs to put it to profitable use quickly.

But others think the current share price dip is overcooked, pointing out that 35,000 job cuts are not as drastic as they sound in the context of the banks average 25,000 annual staff turnover. Its also been highlighted that the streamlining plan should make $3.5 bn worth of cuts over the next two years which would go some way towards assuaging investor fears.

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