Interactive Investor

Share of the week: A high-flying blue-chip

15th September 2017 17:10

David Brenchley from interactive investor

It's not been the best of weeks for UK-listed stocks, but there's been no shortage of impressive stock moves.

The FTSE All-Share closed below 4,000 for the first time since early May, having shed 2% this week. The FTSE 100's fared slightly worse and also sits at its lowest in four months. That can be easily explained, with sterling strengthening on increasingly hawkish rhetoric from the Bank of England's Monetary Policy Committee.

Still, interest rates are especially salient for banks whose margins improve when borrowing costs increase. Consequently, Lloyds Bank and RBS are up around 3%. 

Two shares that stand out are high-street retailers Next and JD Sports. Both are up over 16% on the week, with Next apparently on the road to recovery and JD shooting the lights out once again. Pub chain JD Wetherspoon also put in impressive full-year results and is up 17% in response.

We've covered Next and JD this week and, sticking with the blue-chip index this week, easyJet piqued our interest as one of few stocks to end in the blue.

The budget airline suffered a post-referendum slump until mid-March when things began to look up. Since then, it's flown and came agonisingly close to closing that post-Brexit vote gap, hitting a 13-month high mid-July at 1,444p.

A downgrade to 'underperform' by broker Exane BNP Paribas ended the rally, and easyJet continues to divide opinion. Liberum has a 'sell' rating currently, while both Cantor Fitzgerald and HSBC both have 'buy' ratings. Deutsche Bank think they're no more than a 'hold'.

Still, it's had a better week and climbed 5% in all. The catalyst was a partnership with WestJet and Norwegian to launch Worldwide by easyJet. This service will allow customers to book connecting flights that combine easyJet flights with those of WestJet and Norwegian.

Passengers will still need to transfer their own baggage between the connecting flights, though HSBC's aviation equity analyst Andrew Lobbenberg notes the lengthy two-and-a-half hour 'minimum connection time' will give them plenty of time to do so.

Peter Duffy, chief commercial officer (CCO) at easyJet, told the BBC the initiative would shake up the market, while travel expert Simon Calder said it "poses a threat to established network carriers such as British Airways, Air France and Lufthansa".

While Norwegian's CCO Thomas Ramdahl said it is in talks with Ryanair about striking up a similar deal, the news helped the orange-liveried carrier outperform its Irish counterpart, with the latter sinking 6% on the week to a four-month low €16.95.

EasyJet has also linked up with Loganair in order to begin selling tickets for other airlines through its website. Lobbenberg expects the Worldwide process to be showcased at easyJet's investor day in a fortnight. "Ryanair has spoken a lot about feeding long haul partners but it is EZJ who are first to launch," he said.

Gerald Khoo, analyst at Liberum, says both initiatives "offer scope for incremental revenue", though, while easyJet notes that 1% of its Gatwick passengers already self-connect between easyJet flights, "the [new] opportunity is difficult to scope".

Further news flow came through late afternoon Friday that easyJet has submitted a proposal to buy parts of Air Berlin's short-haul business as part of the German carrier's insolvency process.

"The proposal is consistent with easyJet's focused, city-based strategy in Germany," the firm said in a statement. "However, given a number of uncertainties associated with Air Berlin, there is no certainty at this stage that any transaction will proceed."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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