Buy, sell or hold? Mindful Money’s weekly shares watch: Easyjet, Royal Mail & Centrica

16th November 2015


With Easyjet reporting its full-year results on Tuesday shareholders will be keen to hear if the firm can live up its bullish statement in September when it raised its full year profit forecast to between £675m-£700m.

This comes from a previous estimate of some £620m to £660m mark and up from £581m in 2014.

The discount carrier has been heavily involved in repatriating tourists from Sharm el Sheikh in Egypt and the market will be looking for an update on that issue and how it has affected the overall performance in what is now the company’s first quarter of the new financial year.

Its shares have risen by 16% over 12 months and looking ahead to this week’s update, Graham Spooner, investment research analyst at The Share Centre who has the group down as a ‘buy’ says: “Some analysts are concerned about the rapid increase in capacity and the threat of increased competition but Easyjet has recently launched a loyalty club for frequent flyers.

“With the low oil price helping fuel costs it will also be interesting to hear if ticket prices have been lowered, as well as any comments on expected future dividend hikes.”

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers notes too that a lower fuel bill, an approximate 6% growth in seat capacity and late season UK demand for its beach destinations have all buoyed performance.

He adds: “On the downside, exchange rate movements are expected by management to have dragged negatively by around £20m compared to the prior year. With financial metrics largely outlined, management outlook comments will be closely read.”

Ahead of the results, analyst consensus opinion continues to point towards a ‘buy’.

Thursday sees Royal Mail, down 5% over one year, report its half-year results and the update comes just ahead of the group’s most important period – the run-up to Christmas.

Spooner says: “Investors will be looking for any signs over the threat from competition and possibly news on the next pay review for its staff. It is worth noting that trading conditions have already been reported as being challenging. Other areas to concentrate on will be news on cost cutting and how management’s efforts to improve performance are going. We currently list Royal Mail as a ‘hold’.”

Bowman adds that a continuation of trends as reported in its first quarter trading update are anticipated. He expects that group revenue is likely to prove broadly flat, with growth for both its UK and European GLS parcel businesses offset by ongoing declines for its UK letters business.

He adds: “Management’s ongoing focus on costs may again be underlined, whilst any accompanying outlook comments are likely to further reiterate the importance of Christmas trading.

“On balance and with concerns for parcel competition and relatively limited profit growth expectations set against group cash generation and a still relatively attractive dividend yield, analyst consensus opinion currently denotes a ‘sell’.”

On the same day British Gas owner Centrica posts its latest interim management statement. Spooner, who lists the company as a ‘hold’ notes that the market has been growing increasingly nervous over the group’s third quarter update.

He says: “This is due to increased pressure on power and commodity prices and the impact of mild weather which has been reflected in a couple of analyst downgrades ahead of these results. Any further news relating to its July strategic review will be worth noting, as will client numbers and any further pressure on margins.”

Over the past six months alone its stock has fallen by a hefty 26%. But despite the drop, there may be a buying opportunity as the consensus has warmed to the firm over recent months, with shares edging into ‘buy’ territory.

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