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EasyJet hits an air pocket, despite confirming better guidance

Markets in Asia have had a positive session, helped by a rebound in Chinese markets, as they return from their week-long holiday break. Optimism over some form of mini deal appears to be helping with some of the gains, though US investors appear more pessimistic after finishing the day lower.

The ebb and flow of trade talks appears to be becoming more a case of background noise for investors now that tariffs are kicking in, and may well explain why there has been little reaction to the escalation overnight after the US Commerce Department put another 28 Chinese companies on the so called “Entity List”. European stocks have taken their cues from the positive session in Asia, despite the latest Chinese Caixin services PMI coming in at a seven-month low.

Well, that was short and sweet, it would appear that HKEX has decided that it won’t pursue its interest in London Stock Exchange, thus leaving the LSE free to pursue its strategy of diversifying into the competitive world of market data and taking on the likes of Bloomberg. This has seen LSE shares drop sharply on the open, but given that they are all time highs already, those who were anticipating a higher offer will now have to offload their speculative punts. In reality the HKEX deal was never a realistic possibility when set against a hostile management at the London Stock Exchange and a Chinese regulator who were lukewarm at best. Even if HKEX had decided to up their offer, the deal was of questionable merit, given the problems in Hong Kong right now, along with the exchange’s management structure, which raised concerns about Chinese possible government influence.

When easyJet last reported in July the company reported a 11.4% rise in revenue and said it expected capacity to rise by 0.7% in H2. Management also said they expected headline profit before tax to come in between £400m and £440m for the current fiscal year. Today’s latest update confirmed this higher guidance, and firmed it up to between £420m to £430m, with passenger numbers increasing by 8.6% to 96m, driven by an increase in capacity to 105m seats. Investors it seems are less impressed, with the share price hitting an air pocket today, falling over 5%, though we did hit five-month highs yesterday.

The improved guidance was mainly driven by increased demand due to strikes at British Airways and Ryanair, with total revenue per seat for the second half rising by 0.8%, an outperformance from previous guidance, though on the year this will still show a decline of 2.7%. In signs that overcapacity still remains an issue, the load factor fell to 91.5%, and while this might improve by year end it is still evident that the industry still has too many seats at a time when consumers are opting to stay at home more and more.

As far as forward bookings are concerned these are currently in line with expectations, though management are more optimistic about  total revenue per seat improving into the end of the year. It would appear that given the improvement seen in the second half, due to the woes of its competitors, is raising expectations that the collapse of Thomas Cook may help in terms of improving passenger numbers. 

On the currencies front the pound is still being moved around by the ebb and flow of Brexit politics, with the UK government publishing its latest guidance around temporary tariff structures in the event of a no deal scenario.

US markets found progress much more difficult yesterday slipping lower after the strong gains on Friday, pushing back from levels that are already elevated and close to all-time highs.

On the earnings front we have the latest Q3 numbers from Levi Strauss who IPO’d earlier this year., and was one of those rare beasts that is actually profitable. It did help that it has a tried and trusted business model, as well as brand. Despite this its share price performance has been underwhelming, with the shares currently just about above their IPO price.

When the company reported in Q1 profits came in at $146.6m or $0.37c a share on revenues of $1.44bn, with sales strong in both the US and Asia markets. In Q2 the company stumbled due to the costs of its IPO, it missed profits expectations, by $0.05c a share, coming in at $0.07c. Revenues were better than expected, however with growth in all of its major regions, and the company was at pains to maintain its full year outlook, with expectations for Q3 expected to see profits rise to $0.28c a share


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