- FTSE opens lower after Wednesday’s record
- easyJet CEO to step down, Q3 results look robust
- Meme stocks see declines
- Nio unveils Tesla rival
- Oil price rises on demand outlook and higher inventories
- United Utilities – profit taps running at full flow
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:
“The FTSE 100 has shed points after setting another record on Wednesday. The investor confidence boost from Wednesday’s encouraging inflation data in the US is being partially offset by wider thoughts on a busy day for company earnings. The overall mood remains bright though, with losses relatively minimal. That’s thanks to that inflation data – while the path to disinflation was never going to be without bumps, this latest indicator suggests things are moving in favour of Federal Reserve interest rate cuts this year – albeit this can change at short notice.
One such piece of news is that easyJet’s CEO is stepping down after seven years in the captain’s seat. Johan Lundgren’s replacement has already been found in the current CFO, with the handover planned for next year. This is a natural time for Lundgren to step away, with a strong tenure under his belt and the post-Covid heavy lifting complete. His latest results have shown reasonable momentum for easyJet, with headline losses before tax reducing by £61mn in the third quarter. That’s partly because of cost savings, but also testament to the group’s strong demand and pricing dynamics, which are underpinned by easyJet’s premium network. Its presence at more popular airports and its best-in-class route network helps capture higher levels of custom. The package holiday business has also been a brainchild well-worth pursuing. The cross-selling opportunity and well positioned price points means this area of the business is taking off. Airline booking momentum is coming off the boil slightly, but overall, the outlook looks robust.
The latest meme stock resurgence has paused for breath. Cinema chain AMC has lost 16%, while GameStop shed 20% as the upwards march led by social media stalled. Valuations remain artificially inflated, but these sharp one-day moves stand as a reminder of the dangers of engaging in speculative trades.
China’s Nio has launched a brand to rival Tesla’s best-selling model. The Onvo brand is lower-priced, and its L60 SUV model, which has just been unveiled, has a price tag 12% below Tesla’s Model Y in China. This attractive price tag could help Nio expand outside of China, which would potentially represent a threat to Tesla at a time when Musk’s company is peddling hard to keep volumes moving in the right direction. The proof will of course be in the pudding, but this news is a blot on the horizon Tesla will need to monitor.
Brent crude futures have risen above $83 a barrel, as a larger-than-expected fall in US crude inventories, coupled with the demand-boosting softer inflation reading, pushed the price upwards. The other factor feeding into the price is the latest OPEC report, which showed member countries exceeded their production caps by over half a million barrels a day in April – however, strong demand projections for 2024 were maintained.”
United Utilities – Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“Despite some of its infrastructure desperately needing upgrades, United Utilities showed no leaks in its profit pipeline last year. The UK water sector continues to find itself in the spotlight, and there’s significant work to do in restoring public confidence and trust. But United Utilities looks like it’s ready for the fight, bringing forward £400mn of investment to the current year to help reduce its use of storm overflows at a faster pace.
Outcome Delivery Incentives (ODIs) came in at £34mn last year, which despite being a record reward, is roughly £30mn lower than the group’s original expectations. ODI’s are bonuses for delivering above and beyond committed levels of service to customers.
The shortfall stems from the negative impact of exceptionally high levels of rainfall last year – the wettest year in the North West for the last 69 years. This put pressure on the group’s capacity to manage it all properly, ultimately leading to burst pipes and unwanted spills from storm overflows. Despite the lower ODIs, full-year profits jumped higher at double-digit rates, in line with market expectations. This growth was largely driven by inflation-linked increases in revenue. Alongside strong cash generation, the group’s debt levels remain within the lower half of its target range, which supports its ambitious £13.7bn plans to expand and upgrade its assets between 2025-2030.”
