After four days of decline, leading shares have managed a slight recovery, with easyJet soaring after a well received trading update.
The budget airlline raised its full year profit forecast from £545m-£570m to £575m-£580m, as it benefited from a strong summer travel period, lower fuel costs, favourable currency movements and a strike at Air France, which added around £5m to revenues.
The news has sent easyJet flying 97p or 7% higher to £14.68, the biggest riser in the leading index. Analysts were also positive on the update. Robin Byde at Cantor Fitzgerald said:
EasyJet is trading on a 2015 PE of 10.5 times which is about in-line with the European sector, but at a 17% discount to its 5-year average historic PE metric. We forecast that easyJet will pay a dividend for 2014 of 46.5p, yielding 3.3% (based on a 40% payout ratio).
We also believe that there is a significant chance that the board will announce a special dividend. Last year easyJet paid a total dividend of 77.6p including a 44.1p special
Aside from its attractive valuation and dividend yield, we think that easyJet will continue to take market share from the flag carriers in key markets such as Germany, France and Italy as these companies attempt to restructure their own short-haul operations. We reiterate our buy recommendation and target price of 1,600p.
Jefferies said:
We expect modest consensus upgrades and a positive market reaction. We are more cautious into winter but fuel help, and a higher profit base, leaves us happy with our above consensus 2015 estimates for now.
Close behind easyJet was Tui Travel, up 12.3p at 392.4p as Natixis raised its price target from 395p to 420p in the wake of Thursday's trading update.
United Utilities is up 25p at 809.5p as it responded to regulator Ofwat's draft determination, saying it was "seeking amendments to a small number of relatively minor specific issues." As part of this, customers could see their bills cut by up to 4.1%.
Overall, the FTSE 100 is currently up 52.55 points at 6498.94. On Thursday it hit its lowest level since December last year, on a toxic cocktail of concerns. Slowing economic growth, as evidenced by recent manufacturing surveys, a disappointing report from the European Central Bank which failed to provide the hoped for stimulus to boost the flagging eurozone, protest in Hong Kong, air strikes on Isis and the spread of Ebola.
But despite new service sector surveys showing slowing growth, investors were dipping their toes back in the water ahead of the US non-farm payroll numbers in the afternoon. Mike McCudden at Interactive Investor said:
With the FTSE 100 finding a new low for 2014 the bargain hunters are out in earnest this morning. The bounce in the US market has managed to stem the selling pressure in the short term but many investors will await for the key jobs data later today before they commit.
While geo-political risks remain amidst growing concern over the downturn in China and the fate of the euro zone, the bounce witnessed today may indeed be a short term blip.
There was no blip, short term or otherwise, for Tesco after its recent travails. With investment guru Warren Buffett saying his investment in the supermarket was a mistake, its shares are down another 2.55p to 175.65, a new eleven year low.
RSA Insurance has fallen 5.6p to 470p despite Deutsche Bank raising its price target from 440p to 505p.
Among the mid-caps Debenhams has added 3p to 63p after news that Mike Ashley's Sports Direct International had snapped up a 4.6% stake in the department store group to add to its recent derivative trade which could leave it holding a total of 11.2%.
Sports Direct is up 14p at 609p and analysts at its broker Espirito Santo said:
The relevant issues here are what Sports Direct's intentions are, the financial implications and how to probability-weight a small amount of knowledge into the share prices of Sports Direct and Debenhams.
Sports Direct is now in four Debenhams units – Harrow, Southsea, Bristol and Guildford – up from the initial two. There is no information on how these are going and they are all at such an early stage that we would not regard any disclosure as meaningful.
Investors have been averse to the Group's M&A activity in our view as it does not conform to the predictable pattern best-liked by retail-followers. But we would point to the value created for shareholders over time by the aggregate of the Group's various strategies. If Sports Direct was not aggressive it would not now be on the point of becoming a major international force.
