London Stock Exchange and Wizz Air

Wednesday, January 30, 2019 - 09:23

“Investors appear to be pricing in a positive resolution to the new round of trade talks between the US and China given how mining and oil shares lead the FTSE 100 higher on Wednesday.

“Sterling rises by 0.27% against the US dollar to $1.3103 and by 0.18% against the euro to €1.1451 following the latest developments in the Brexit saga. But it’s not enough to stop the banks slipping, with Barclays the worst sector performer,” says Russ Mould, investment director at AJ Bell.

London Stock Exchange

London Stock Exchange’s purchase of a 4.92% stake in Euroclear, which is one of the world’s largest settlement houses, is an interesting move and one that could stir up speculation of a full takeover down the line.

“David Schwimmer, chief executive of the LSE, has been in the job since last August and is likely to have settled in and got his strategy in place to drive the company’s next phase of growth. He has a background in investment banking and will be well versed in the M&A game.

“Owning Euroclear would give the LSE a stronger position in the European settlement and custody market and there would theoretically be an opportunity for the LSE to improve the target’s financial performance.

“The big problem to overcome is rival firm ICE owning 10% of Euroclear’s equity and having a seat on the board. Would ICE instead prefer to own the LSE to stop its competitor having a strong position in the market?”

Wizz Air

“Low-cost Hungarian carrier Wizz Air is showing just how precarious the profitability of an airline can be as an increase in staff and fuel costs results in a big drop in third quarter profit.

“This comes despite a significant increase in revenue on higher passenger numbers as the company builds its position as a leading airline for destinations in eastern and central Europe.

“Underpinning the strategy is a strong balance sheet and the company’s investment in cost-efficient aircraft like the A321 NEO. Roll-out of these planes gets underway in the fourth quarter.

“The company still expects to meet full year profit guidance but whether it comes in at the top or bottom of this range is dependent on the level of March bookings and Brexit.

“While these factors are largely out of the company’s control, investors will be looking for a much tighter hand on costs going forward.

“And Wizz Air may also be hoping for more of a shake-out in the industry. As more of its rivals go to the wall, so the competitive pressures it faces might ease slightly.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.