Entertainment One and easyJet

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“Markets are flashing red once more, following yesterday’s disastrous day on the US markets where tech stocks were hard hit. The FTSE 100 was down 0.4% in early trading on Tuesday, dragged down by weakness in banks and miners. It now trades below 7,000 and is down 9.4% year-to-date. In Asia, Hong Kong’s Hang Seng index fell 2%,” says Russ Mould, Investment Director at AJ Bell.

Entertainment One

“Many people presume that being a film maker and distributor equates to soaring profits amid growing public appetite to consume media via digital streaming platforms. However, Entertainment One’s results are an unhappy reminder that certain types of media inevitably go out of fashion.

“The slow death of the DVD has caused a minor setback at Entertainment One as it reports a £57m impairment charge relating to the decline in the home entertainment market. It has impaired certain film distribution assets because fewer people are buying those shiny discs.

“Arguably this isn’t a major worry because many other parts of its business are booming. Kids favourite Peppa Pig has become an unstoppable force around the world and PJ Masks looks like it is heading in the same direction. Entertainment One has a stake in both brands and benefits financially from distribution and merchandise sales.

“The business is expanding with live events and its film and TV division continues to churn out lots of content that is mopped up by the likes of Amazon and Netflix.

“ITV has tried and failed to buy the company in the past. One could argue that Disney would be a better owner of Entertainment One as it is in the process of developing its own streaming service and assets like Peppa Pig and PJ Masks would strategically be a great fit, plus the extra film and TV content that would come with such an acquisition.

“Indeed, Disney is already part owner of the PJ Masks brand and so may want to increase its position given it is becoming a very lucrative asset.”

easyJet

“Today’s full-year numbers from budget airline easyJet demonstrate the benefits of survival in an unforgiving industry which has recently seen several of its peers go to the wall.

“Combine this status with the various headwinds facing major rival Ryanair and it is perhaps no surprise to see the company achieve healthy increases across most metrics.

“However, investors may be more concerned by a 5.3% increase in costs once fuel is stripped out.

“Part of this was linked to its acquisition of operations at Berlin’s Tegel airport, but it also relates to industrial action and higher salaries for its flight crews.

“Tight control of costs is a really important for an airline whose main attraction to flyers remains its low ticket prices.

“The company has done all it can to prepare for Brexit, setting itself up to operate through subsidiaries in the UK, Switzerland and Austria. It is close to ensuring more than 50% of its shares are held outside of the UK – which would enable it to continue operating in the EU.

“easyJet says UK demand remains strong despite the threat of disruption from Brexit, but it may be a tough ask for it to match such a strong 2018 performance in its current financial year.”

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