EasyJet, RPC and Smiths Group

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“Weak sterling gives a lift to the FTSE 100 on Wednesday, benefiting the large number of companies that generate earnings overseas, such as miners and construction firms. The blue chip index was up 0.5% to 7,667 in early trading,” says Russ Mould, Investment Director at AJ Bell.

EasyJet

EasyJet’s latest trading update is a perfect reminder of the low-cost airline model. It is flying more people thanks to an increase in capacity and it is making more money per passenger thanks to higher prices and non-ticket income, such as baggage fees.

“Clearly these metrics can’t always go up and the industry has certainly shot itself in the foot by over-expanding capacity over the past few years, making the airline sector highly competitive. And EasyJet isn’t immune to pressures from higher oil prices and recurring industrial action.

“However, this is a business that is clearly doing its best to cope with industry turbulence and continues to churn out large profits.

“Its decision to develop a package holidays business also shows how the management team aren’t short of ideas to find new ways to capitalise on a very strong brand and squeeze more money out of its large customer base.”

RPC

“In an unusual trading statement, plastic packaging play RPC effectively pressed pause on its growth ambitions.

“The company has relied heavily on acquisitions to expand in recent years but now chairman Jamie Pike admits a falling market value and ‘differing investor views’ are constraining its ability to ‘pursue some attractive opportunities for growth’.

“Reading between the lines, the implication appears to be that the company cannot raise funds in the equity markets because its share price has been weak for much of the year and it is fearful of taking on more debt to fund M&A.

“Perhaps in the long run a more disciplined approach, focused on cash generation and the disposal of non-core businesses to provide funds for investment, could be the more prudent path, even if it is one the company has been boxed into rather than chosen for itself.”

Smiths Group

“As a conglomerate with different industrial businesses, Smiths Group can in theory benefit from diversification. If one part of the group is not performing, then another area can come to the rescue.

“However, it often seems to work the other way for the company, with market attention drawn to struggling operations, overshadowing progress elsewhere.

“A full year trading update reveals a hit from new EU medical device regulations, compounded by the loss of two contracts in the US, will see the medical division underperform.

“The rest of its operations, which include oil services and detection technology, are doing well. Today’s news may only add to calls for a break-up of the group and the company is continuing discussions about a potential combination of its medical arm with ICU Medical.”

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