International Consolidated Airlines goes cap in hand, and Games Workshop beats expectations yet again

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“After US stocks last night bounced back from a week of misery, this improved sentiment managed to extend to parts of Europe and Asia on Thursday. One exception was the FTSE 100 which slipped 0.4% to 5,990 with healthcare, mining and energy stocks all weak,” says Russ Mould, Investment Director at AJ Bell.

BP was among the top fallers on the FTSE after striking a deal to buy a 50% stake in two US offshore wind power projects for $1.1 billion from Norwegian group Equinor. Its share price had already been struggling for the past month amid renewed oil price weakness.

Morrisons was also out of favour with its shares falling 4.4% after flagging margin pressures due to cutting prices and delaying planned productivity improvements.

“A meeting later today from the European Central Bank is not expected to result in any change to policy."

International Consolidated Airlines

International Consolidated Airlines’ €2.7 billion fundraising effort is finally underway with investors being told the terms of the heavily discounted share issue.

“Despite the significant dilution to investors, the fundraise should be positive for them in the short-term as it will provide the British Airways owner with much needed financial support. However, there remains a fear that this money won’t last long unless the coronavirus crisis is brought under control quickly.

“You just need to look at its comments on trading to understand why the airline sector remains in a very fragile place. The relaxing of lockdown conditions in June resulted in a surge of new bookings, however that frenzy quickly died down as new quarantine requirements were imposed by various governments including the UK.

“Airlines realise they’ve been over-optimistic with regards to capacity for the coming months, so we’re getting another wave of cancelled flights. That won’t help consumer sentiment, particularly given the uproar over how the industry did everything it could to avoid refunding customers earlier this year for flights that didn’t happen.

“Travellers have become reluctant to book too far ahead and so airlines – and, as a result, hotels – are seeing people leave it to the last minute to book. That means there is minimal earnings visibility, thus putting pressure on management to find even more ways to save money.

“Anyone taking part in IAG’s rights issue needs to understand that they are still taking on considerable risks to their money despite the large price discount offering some compensation.”

Games Workshop

“There is no question that Games Workshop is a winner on the stock market. For what feels like the umpteenth time the Nottingham-based fantasy miniature figures seller is trading ahead of expectations and has made an earlier than expected return to the dividend list.

“In the last five years the shares have delivered a total return of 1,710%. Rival UK growth companies must be tempted to sweep their pieces off the table and go home.

“Simply put this is an excellent and brilliantly-run business. The company is reaping the rewards from having got its act together on the digital front in recent years – enabling it to continue generating bumper sales through lockdown despite the obvious impact on its physical stores.

“It always helps when a company understands its customer base and is able to deliver what that customer base wants. This is something Games Workshop has got down to a tee.

“The business has significant operational leverage, as many of its costs are fixed, so a big chunk of any increase in sales drops straight through as profit and cash.

“This a vertically integrated business which makes its own products and sells directly to consumers through its shops, website and trade partners.

“Perhaps more importantly it creates and has created its own intellectual property which should mean growth is self-sustaining. With a well-established brand the company can keep generating new worlds and characters and thereby generate fresh sales from its devoted fanbase.

“While it remains a relatively modest contributor to group revenue just now, the company is also growing royalty income by exploiting its deep well of intellectual property through licensing deals for video games, films and television.”

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.