The Telegraph 14/08/19 - Vox Markets | Vox Markets

The Telegraph 14/08/19

The grounding of Boeing’s 737 Max airliner in the wake of two fatal crashes continues to send shockwaves through the sector, with holiday company TUI AG Reg Shs (DI) (TUI) and aviation services group Menzies(John) (MNZS) warning of hits to their business as a result. TUI said not being able to fly the 737 Max meant it would run up a €300m (£278m) bill in the year to the end of September, as it totted up the cost of disruption to flight schedules, charters of replacement aircraft, additional crew and higher fuel bills. “It’s a critical situation, with the jet on the ground now for almost five months. It’s a lot of stress,” said TUI chief executive Fritz Joussen, adding that leasing planes is “very, very expensive” and the fuel bill was higher. John Menzies swung to a £4.4m loss for the first half of the year against a profit of £8.3m a year ago. Revenue rose 3.6% to £650m. Giles Wilson, chief executive, said a combination of the loss of contracts last year, weak cargo volumes and the grounding of the 737 Max drove John Menzies into the red. “Cargo volumes and yields have been weak and we are seeing a number of airlines failing to fly their stated schedules further compounded by the grounding of Boeing 737 Max,” Mr Wilson said. He added that “well-documented weaker markets across the wider aviation sector” were multiplying John Menzies’ woes. It has a launched an efficiency drive to save £10m a year, having warned on profits last month.

After floating at a price of £19 per share target last October, Aston Martin Holdings (AML), the luxury carmaker has been stuck in the kind of speedy reverse that 007 would employ to avoid a roadblock. Investors might be hoping Aston Martin shares have found a spot to park. Unfortunately Credit Suisse analysts have slashed its target price to a third of the previous value, down from £16.30 to 529p. They wrote: “If the economic environment deteriorates further, a capital increase might be needed to deleverage the balance sheet.” The analysts added: “We believe that the growth pattern and the levels of profitability and vertical integration make it difficult to clearly characterise [Aston Martin] as a luxury goods company or car producer.” This is, to say the very least, not a great look for a company that is desperate to convince the world it is both. Panmure analyst Sanjay Jha thinks the company is worth even less and has set a target price of 327p, down from 543p — which would mean the struggling car firm’s share price falling by another third.

Rolls-Royce Holdings (RR.) managed to shrug off a downgrade by Moody’s to end the day flat. The ratings agency cut the rating on Rolls’s long-term debt from Baa1 to A3, just three notches about “junk” status, with the outlook classed as stable from the previous negative. The downgrade came just days after an airliner taking off from Rome had to make an emergency landing when parts appeared to fall from its engine, a Rolls Trent 1000.

 

Muddy Waters, the US short seller behind the “bear attack” on Burford Capital (BUR), has dismissed the litigation funder’s response as “nothing more than distraction and thin excuses”. The San Francisco-based firm sought to regain the upper hand in a high-stakes spat that has left Burford’s shareholders nursing more than £1bn in losses and has descended into a daily exchange of verbal blows. “Leave it to former trial lawyers to talk so much, and yet say so little,” said Muddy Waters in a disparaging note hitting back after Burford’s claim on Monday that it had uncovered behaviour “consistent with illegal market manipulation”. The short seller went on the offensive a day after the City watchdog confirmed it was making “wide-ranging enquiries” into the saga, which began with a cryptic tweet from the short seller last Tuesday. The firm, led by former lawyer Carson Block, said it welcomed scrutiny from the Financial Conduct Authority, that it had “nothing to hide” and “stands ready to assist… in any inquiry”.

Plus500 Ltd (DI) (PLUS) shrugged off fears over a potential crackdown in Australia as it battles rule changes aimed at protecting punters from running up huge losses. New powers given to the Australian Securities and Investments Commission (ASIC) are similar to those already held by European regulators, allowing them to tackle abuses in the sale and marketing of a range of financial products. One City analyst said sales at Plus500 could drop up to 6% if tighter rules were enforced Down Under, although it was unlikely to affect results for this year. Plus500 chief executive Asaf Elimelech said he “definitely” expected rules in Australia to change although he would not comment on when. “We are constantly assessing the potential impact of the regulatory landscape and are preparing ourselves for any event if it may come,” said Mr Elimelech. “There will most likely be a hit on the revenues, and maybe that’s up to 6% in the long term, but it will depend on the level of the restriction.”

Card Factory (CARD) has bucked the decline on the high street with rising sales and the promise of a special dividend for its shareholders. The company chalked up growth despite what it called a “challenging consumer environment”. Like-for-like sales in its shops open for more than year grew 1.2% in the six months to July, reversing a 0.7% slump in the same period of 2018. Total sales grew 5.5%, also an acceleration on last year. Unlike many of its peers, the company is opening new stores at pace, with 26 net new shops added to its estate this year so far. Card Factory teased the “return of surplus cash to shareholders” in 2020, with the amount expected to be announced next month when it reports its full interim results. The retailer was helped by a “successful Valentine’s Day and Mother’s Day”, but reported a weaker performance on Father’s Day as footfall softened in the second quarter.

Next (NXT) boss Lord Simon Wolfson has said that no-deal contingency planning by Boris Johnson’s government means the UK will not suffer disorder and chaos if it fails to secure a Brexit deal with the EU. “We are a long way from disorder and chaos,” Lord Wolfson told the BBC, saying that no-deal planning meant the economy was better prepared for no-deal. “I think the encouraging thing is that we are rapidly moving from the disorder and chaos camp to the well-prepared camp.” He said that Next had moved all of its imports and exports out of Calais to other ports. However, he admitted that there was a risk that smaller companies that had not prepared for Brexit could cause major knock-on problems for other businesses at ports and other bottlenecks by getting in the way of those that were prepared. In such a scenario those smaller traders should be moved out of the way, he said.

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Mentioned in this post

AML
Aston Martin Holdings
BUR
Burford Capital
CARD
Card Factory
MNZS
Menzies(John)
NXT
Next
PLUS
Plus500 Ltd (DI)
RR.
Rolls-Royce Holdings
TUI
TUI AG Reg Shs (DI)