Airlines buck wider market sell-offs, Whitbread goes cap in hand to shareholders and Pets at Home warns on profit

“A strong showing on Wall Street last night failed to provide a tailwind for equities on Thursday as markets across most of Asia and Europe slipped back. “The FTSE 100 dropped 0.7% to 6,022 with weakness in consumer cyclicals, financials, utilities, healthcare and technology. “Bucking the trend were airlines with Lufthansa up 7% on advanced talks over a €9 billion state bailout and EasyJet jumping 2.3% after indicating it would restart some flights in mid-June. Jet2 owner Dart Group soared by 15.4% after it raised £174 million through a significantly oversubscribed share placing. “Airlines didn’t experience the stock market recovery rally that pushed up many other sectors in April as investors have been very nervous about the state of operators’ finances,” says Russ Mould, Investment Director at AJ Bell.

Whitbread

“Not so long ago Whitbread was in a strong position having sold its Costa Coffee chain to Coca-Cola for £3.9 billion. Of that money, £2.5 billion was given back to shareholders. Fast forward to 2020 and we’ve got a reversal of fortunes with Whitbread going back to shareholders cap in hand asking for cash to help see it through the pandemic.

“Shareholders won’t be covered by Premier Inn’s promise of a good night’s sleep or their money back. Anyone taking part in Whitbread’s rights issue will need to assume that life returns to normal in the next few years and that there isn’t an earnings nightmare in the near-term.

“The UK summer holiday season could be restricted to staycations which in theory would give Whitbread a boost for its UK Premier Inn hotels. That assumes cafes, restaurants and public toilets are reopened across the country in time and people feel comfortable going out.

“Beyond the summer period Whitbread’s hotel demand may be more dependent on foreign tourists and business travel which is less certain.

“The scale of Whitbread’s fundraise would suggest it isn’t taking any chances, despite already having a fairly decent balance sheet. It seems to be taking the view that it is better to have as much money as possible now in case the pandemic goes on for longer than expected. If the world starts to get back on its feet fairly swiftly then Whitbread could be in strong position financially to accelerate its expansion in Germany.”

Pets at Home

“Specialist retailer Pets at Home won’t be earning a pat on the head for its full year results with a profit warning for the current financial year that is about as welcome as the latest ‘present’ your cat left on the doorstep.

“Results to March may have beaten expectations but disappointingly an initial spike in sales at the start of lockdown has fallen away.

“Like its supermarket peers it is facing increasing costs as a result of coronavirus as well as an impact as social distancing measures are introduced.

“Surviving and thriving in the crisis are different things and while Pets can at least still operate, online sales are not enough to make up for the loss of business in store.

“The update also revealed the company’s reliance on selling little extras to pet owners besotted with their furry or feathered friends. Current sales are instead largely dominated by essential food items.

“However, the maintenance of the full year dividend is nothing to be sniffed at in the current climate and the company has made progress in its transformation of the business, with continued growth in subscription numbers.

“Assuming the business can come through the crisis intact it could well be ahead of the pack as less robust competitors fall away.”

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.