EASYJET swooped in with news of bumper passenger numbers and higher load factors yesterday. Unfortunately for the no-frills carrier, investor reaction was far from positive – even putting the market volatility to one side.
With their sights firmly
trained on the horizon, traders were more concerned with EasyJet's prospects for the long winter months.
Those prospects look far from bright.
Until now, the appeal of the ten-quid flight has easily outweighed the delays, security screening and prospect of being stuck in a metal tube six miles up for hours on end.
Trouble is, those tenners are increasingly being diverted to more essential uses, like mortgage repayments, utility bills and food – all of which have soared in recent months.
That cutback in discretionary spending spells bad news for the airlines, with the budget boys most exposed to the consumer slowdown.
The growing concerns about the health of the economy hit shares across the sector yesterday.
British Airways was thhest- profile victim, plunging to a five-and-a-half-year low after its traffic numbers, released on Friday, revealed that passenger numbers had fallen by 4.8 per cent.
EasyJet, in contrast, carried 22 per cent more passengers last month that the same month a year earlier, while managing to fill more of its seats.
Yet, its shares slumped 6.9 per cent to 305p, having touched lows of 301.25p on the way.
Douglas McNeill, an airline analyst at Blue Oar Securities, summed up: "The concern in the market has to do with the outlook.
"The prospects for consumer spending and consumer confidence are not too good, and some people worry that it will affect demand for EasyJet's service at some point."
The stock has shed almost half of its value in the year to date as the airline battles the twin threat of rising fuel costs and impending recession.
With further turbulence ahead, it may be a wise time to cut losses and bale out.
SHORT selling of financial stocks is banned – so why is there so much of it going on, asks Erikka Askeland.
The Financial Services Authority's four-month ban on short selling of certain listed securities was meant to protect vulnerable companies from the forces of speculation. But while the law prevents new short positions from being taken, it does not require speculators to unwind ones held before 19 September.
So every day there is still a position, there is a notification – creating a blizzard of paperwork. So it must make it worth the while of speculators to push the pens (or the electronic forms) to keep them.
And it is. According to Jason Streets, an analyst at Evolution Securities, a good short position is something to hang on to as they are now even more valuable due to their rarity.
"Why would you give up a valuable short position?" asks Streets.
Indeed even the "name and shame" notification scheme the FSA demands seems to have lost its stigma, as the sting of the First Minister's canny, if opportunistic, "spivs and speculators" jibe fades.
If you only paid a little attention to the credit crunch saga you could probably have a stab at predicting which financial stocks the short sellers are betting will fall. And you wouldn't be far wrong – HBOS, RBS, Lloyds TSB.
But what about Aberdeen Asset Management (AAM)? What is wrong with this company that it is such a darling among those expecting a fall? There are at least five hedge funds with views on the direction its share price will go, and it ain't the right one.
One of them, TT International, has a cute phrase on its website that says "staying away from trouble is critical to maximising returns". Indeed.
Aside from the fact AAM holds assets whose value is falling every day – as is the case with anyone who manages assets – it also has what analysts smilingly call an "interesting capital structure". In May last year it sold "perpetual securities" to some Singaporean investors making it the second-highest leveraged asset management firm on the FTSE behind New Star. AAM now has a tie-up, announced last week, with Japan's largest bank, Mitsubishi. But some noted that what might have been a 20 per cent stake is actually 10 per cent. And it is not new stock, it was bought up from existing investors who did not seem to put up much of a fight.
The full article contains 747 words and appears in The Scotsman newspaper.
