FTSE 100 makes gains despite Ukrainian conflict, International Consolidated Airlines continues to lose money, and Rightmove to face a downturn test

“Despite war continuing to rage in Ukraine the FTSE 100 managed decent gains on Friday as investors make slightly queasy calculations about the extent to which the economic and market impact of Russia’s invasion will be contained,” says AJ Bell Investment Director Russ Mould.

“The index took its cue from a dramatic reversal in the US overnight. Results from Russian steel producer Evraz provided an indication of the tricky spot firms with links to Russia are in – with the company just barely acknowledging the conflict, or ‘geo-political situation’ as it euphemistically dubs it, in a statement so thinly worded as to be meaningless.

“However, after some extremely heavy selling in recent days its shares and those of other firms in the firing line like gold miner Polymetal bounced back.

“Metals markets are surging, lifting the mining sector as a whole, and wheat prices are at a 13-year high – reflecting the fact that both ‘bread basket of Europe’ Ukraine and Russia are major producers of the crop.

“Along with higher energy prices, we are getting almost constant reminders that war will only add to the current inflationary pressures.

“The weakest UK consumer confidence number since April 2020, right in the teeth of the pandemic, certainly fits the downbeat mood.”

International Consolidated Airlines

“The airline sector has been waiting a long time for its big comeback and every time it looks as if there are clear skies along comes something else to stop the recovery.

“Covid’s multiple variants have weighed on sentiment towards wanting or being permitted to fly, which has put a lot of financial pressure on airlines. Now we have the war between Russia and Ukraine making some people nervous about wanting to get on a plane again.

“All of this adds up to a big headache for International Consolidated Airlines which continues to lose money.

“While its loss after tax narrowed considerably in 2021, net debt has ballooned and capital expenditure is set to increase more than five-fold in 2022 to €3.9 billion as it must rebuild capacity, take delivery of aircraft delayed from last year and meet delivery payments deferred from previous years.

“There are so many moving parts with the airline, yet the one thing that is perhaps not moving as fast as it should is the rise in the number of bums on seats. International Consolidated Airlines’ British Airways brand has just held a big sale to try and shift more tickets, and it needs to have good Easter and summer periods to try and get more cash flowing into the business to help repair its finances.

“The group is optimistic it will return to profit in 2022 and it is certainly doing everything it can to try and boost revenue, including some punishing fees to reserve a particular seat on a plane.

“Business travel has historically been an important market for International Consolidated Airlines, but the rise of Zoom and Microsoft Teams have now made corporates realise they can have efficient meetings via the internet rather than flying hours to a different country for an hour in a boardroom and a few drinks at the bar.

“International Consolidated Airlines will have to become more creative to try and win back the business customer or reconfigure its strategy to encourage more leisure travellers to fly further on its planes.”

Rightmove

“Rightmove continues to realise the benefits of being the leading UK property website. Its market leader status creates a virtuous circle for the business.

“Its site has the most listings and is therefore the one which prospective property buyers will likely go to first when looking for their next home. This reinforces its position as a must-have product for estate agencies and gives it significant pricing power when it comes to securing subscriptions from agencies.

“It doesn’t hurt that the UK housing market has been buoyant of late, which means its estate agent customers are happy to pay more for Rightmove’s services.

“Notably the proportion of customers taking its upgraded package more than doubled in 2021 providing a strong driver for the group.

“This is important as Rightmove’s penetration of the market is already very significant and therefore growth in revenue, earnings and cash flow is heavily reliant on charging agents more. Initiatives like new digital marketing solutions and a more concerted push into the rental sector will help but are unlikely to move the dial in the same way.

“Rightmove has faced a backlash from the industry for the level of fees it charges but despite some efforts to unseat them from their dominant position, including through agent-backed rival OnTheMarket, the company has proved very hard to budge.

“The cost of living crisis looks set to put pressure on a buoyant market but in one sense this might make Rightmove’s proposition more valuable.

“To stay in business there will be a real imperative for agents to sell more properties and the Rightmove’s offering is arguably even more valuable. We may be about to find out if this logic holds true.”

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