FTSE 100 makes new all-time highs, International Consolidated Airlines benefits from early Easter and Rightmove hit by shift in business mix

“The FTSE 100 is again in the ascendancy as the market hit new all-time highs on Friday,” says AJ Bell Investment Director Russ Mould.

“Given its international horizons, this has little to do with the UK’s better-than-expected GDP growth and is largely being driven by strength in the resources space where higher metals prices and the promise of M&A are helping to stoke share prices.

“The next key test of the index’s new-found vim and vigour will likely come next week in the form of US inflation figures.

“Investors have broadly accepted rate cuts won’t be as deep or come as soon as would have been anticipated at the start of the year. However, any signs inflation is proving much more stubborn than predicted would still represent a shock to the system for financial markets.”

International Consolidated Airlines

“At first glance, International Consolidated Airlines’ first quarter results look promising. It cites strong passenger demand, higher revenue, lower fuel costs, operating profit growth, increased capacity and a stronger balance sheet. Look closer and it’s not all plain sailing.

“The airline will have benefited from Easter falling earlier than normal and squeezing into the reporting period. Easter is traditionally a major sales catalyst for airlines as more people travel and ticket prices enjoy a bump to capitalise on this demand. If that catalyst didn’t feature in this quarterly period, it seems inevitable that International Consolidated Airline’s results might not have been so good.

“Investment into extra capacity is all well and good but it needs to get more bums on those extra seats. The ‘load factor’ measurement indicates how full its planes are, and there is scope to do better.

“Business demand is still a laggard compared to leisure travel. That’s a bugbear for International Consolidated Airlines given its British Airways brand used to hang its reputation on attracting large swathes of business customers. The advent of video conferencing systems Teams and Zoom have done away with the need to travel to meetings for many companies and that’s hit International Consolidated Airlines where it hurts. While there are tentative signs of a recovery in demand for in-person meetings in various parts of the world, there is a still long way to go before we return to pre-Covid levels.

“That means the leisure market is International Consolidated Airlines’ bread and butter for the time being. This is a highly competitive market so the airline needs to think on its feet to find new ways to lure more people in. The fact it has got debt under control means that management can focus on the day to day running of the business rather than living under the cloud of financial pressures.”

Rightmove

“Signs Rightmove is struggling to generate as much money from each of its individual customers prompted disquiet among investors as it posted its latest trading update.

“Being the market leader creates a virtuous circle for Rightmove. Its site has the most listings and is therefore the one which prospective property buyers will go to when looking for their next home. This reinforces its position as a must-have product for estate agencies and housebuilders. It also gives Rightmove significant pricing power when it comes to securing subscriptions from these customers.

“However, a shift in the mix of Rightmove’s business, with strong growth in the number of lettings agents subscribing to the platform, is affecting the key average revenue per advertiser metric.

“Rightmove is at pains to point out that if it was not for this shift its guidance here would have remained unchanged. However, the fact Rightmove is seeing this shift in itself could be instructive and imply it is finding it harder to secure new customers or upsell existing users in the new-build and traditional estate agent markets.

“This may only add to nervousness about the renewed competitive threat posed by OnTheMarket after the latter’s acquisition by big US outfit Co-Star as a way for it to enter the UK market.

“Tellingly, the customer growth seen at the start of the year is not translating into upgrades to the full-year revenue and profit outlook.”

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