Ryanair and Sophos

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“European and Asian markets catch a ride on the same tailwind which lifted US stocks last night, being hopes that the US could ease tariffs on China. That would clearly be good news for commodity producers, explaining why miners and oil stocks are among the biggest risers on the UK market. “The FTSE 100 was up 0.8% on Friday morning with many markets in Continental Europe exceeding 1% gains including Spain’s IBEX 35 which was up 1.2%. “Investors have been getting very tired of the trade war tensions so any progress on this front could be extremely supportive for the markets,” says Russ Mould, Investment Director at AJ Bell.

Ryanair

“Another profit warning has darkened the clouds over Ryanair as the airline struggles with lower air fares. But in true Ryanair fashion, chief executive Michael O’Leary finds something to be optimistic about, this time implying that the Irish company will crush the competition and flush out more loss-making rivals.

“Lower air fares is the fault of the industry being too aggressive with expansion plans as there is now over-capacity in the short-haul market. This situation could get even worse unless more airlines go bust.

“The airline industry is going through a difficult time at present. American Airlines and Delta Airlines have both issued profit warnings this year, causing the market to worry about the sector’s growth outlook.

“Flybe is in talks to be bought for a tiny amount. Many operators have locked in fuel prices for much of 2019 so they won’t immediately benefit from the recent retreat in the oil price. And the risk of strikes coming back to haunt the sector once more cannot be ruled out.

“All these factors are a nasty reminder just how volatile the airline industry can be.

“Some analysts have started to ponder fantasy takeover scenarios amid weaker share prices in the industry. The airlines don’t look desperate enough at the moment, but a continuation of the current pains could turn takeover fantasy into reality if 2019 does prove to be a disastrous year for the industry.”

Sophos

“Cyber security is a growth area but that does not mean companies operating in this space are guaranteed to be successful – Sophos being a case in point.

“Its third quarter update showed a return to profit backed by double-digit growth in revenue.

“However, the level of billings – or new business invoiced in the period under review – offers a better measure of how sustainable growth is. Revenue, after all, can include income from previously-agreed contracts.

“Here the picture is much less encouraging. Billings were up just 2% in the third quarter and 2% for the financial year-to-date. And this is giving investors the collywobbles, just as it did when Sophos reported billings growth of 3% in a first half update.

“The slowing billings growth is putting cash earnings under some pressure and suggests that, unless the company has something spectacular up its sleeve for the fourth quarter, full year expectations will have to be downgraded.

“The company enjoyed a strong run following its summer 2015 stock market debut, but the shares have halved in the last 12 months. They now trade just 25% higher than the 225p issue price from the IPO and 17% up on the closing price on the first official day of trading. As such, chief executive Kris Hagerman’s position may be coming under increasing scrutiny.”

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