Dixons recovery gathers pace, and EasyJet takes off on strong demand

“The FTSE 100 was lower this morning, taking its cue from selling in Asia amid growing concern about the ‘coronavirus’ in China which has led to the death of at least four people,” says AJ Bell Investment Director Russ Mould.

“The markets will be watching nervously amid reports the deadly virus has spread to neighbouring countries, with all the potential economic disruption that could cause."

Dixons Carphone

“There are some very encouraging signs in Dixons’ latest update, particularly its UK electrical sales outperforming the market. Overseas earnings are also doing well.

“Dixons has been in turnaround mode for some time and this update suggests solid progress is being made in almost all parts of the business. Sadly the mobile arm continues to be a real drag and that’s partially down to consumer shopping trends.

“The nation seems happy to load up on giant TVs and buy the latest gadgets but there isn’t much excitement about having the latest handset. People are holding on to their phones for longer, which has been a growing problem for Dixons which relies on people upgrading handsets on a frequent basis.

“In the context of Dixons’ recovery story, having everything apart from mobile move forward in terms of sales growth is still a positive result.

“A pick-up in the housing market, as evidenced by the latest Rightmove survey, bodes well for Dixons as buying a new TV might be a natural purchase when moving home. Any improvement in consumer confidence would also work in Dixons’ favour.

“High levels of employment and relatively low levels of inflation in the UK certainly provide a more favourable backdrop for increased consumer spending. While that hasn’t yet been reflected in retail sales figures, some clarity on how Brexit might play out could be the boost desperately needed by the nation’s shopkeepers.”

EasyJet

“Thomas Cook’s demise continues to provide cheer to its rivals based on budget airline EasyJet’s latest update.

“Following on from recent reports of strong demand from its competitor Ryanair, EasyJet’s upgrade to first-half revenue per seat guidance is putting the shares in lift-off mode.

“Thomas Cook’s exit from the market as well as the grounding of the Boeing 737 Max aircraft and retreat from the short-haul market by Norwegian Airlines has led to a reduction in industry capacity.

“In turn this has helped to ease some of the competitive pressures in what still remains a pretty cut-throat market.

“The company’s launch of a new package holiday business seems to be off to a solid start based on some customer metrics, although there are no financials in today’s statement, only a commitment for the division to break-even in the current financial year.

“With signs the Government might be considering changes to the application of Air Passenger Duty, which could boost EasyJet’s UK operation, there are reasons to be positive for the company.

“Yet cost inflation remains a concern, driven up by increased wages for staff, as well as industrial action and ownership costs associated with the delivery of new aircraft.

“Longer term, and despite an apparent commitment to sustainability, the company faces the challenge of people potentially flying less as climate change awareness increases.”

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.