Ryanair traffic up on pre-Covid levels and HeiQ shares halve on major earnings warning

“The FTSE 100 shrugged off a sell-off in US tech stocks overnight to trade a smidge higher on Wednesday morning in the latest reminder of the big differences between the UK’s flagship index and its counterparts across the Atlantic,” says AJ Bell investment director Russ Mould.

“The resilience of the FTSE 100 was impressive given it was able to withstand material falls for index heavyweights BP and Shell on lower oil prices. Investors are increasingly concerned about the current covid situation in China where a relaxation of restrictions is leading to a surge in cases.

“Thanks to less effective vaccines and a population with much less natural immunity, China is some way behind the West in its recovery from the pandemic and this has implications for global growth and global supply chains.

“Hopes for some respite from surging prices for UK households appear to have been dashed as the latest figures show food inflation at record levels.

“This is bad news for all consumer-facing businesses as the increased cost of the weekly shop leaves less money left over for discretionary items, such as dining out or heading to the pub or the cinema.”

Ryanair

“Budget airline Ryanair undoubtedly deserves some credit for the heights it has reached in the wake of the pandemic.

“Emerging from covid with a strong balance sheet and with traffic above pre-pandemic levels over Christmas, Ryanair is testament to a Darwinian, survival of the fittest transition in the airline industry.

“As weaker rivals have entered the departures lounge, Ryanair’s competitive position has been enhanced, though this is not such good news for passengers. The company has a well-earned reputation as a hard-nosed operator and it is successfully passing on higher costs to its customers.

“For the time being increased fares seem to be having a limited impact on appetite for air travel, with an element of pent-up demand providing some support. Whether that can continue as other inflationary pressures take their toll remains to be seen.”

HEIQ

“HeiQ is no stranger to profit warnings and true to form along comes another one. It’s so severe, covering 2022 and 2023 earnings, that the share price has more than halved on the news.

“A few years ago, investors were raving about HeiQ’s technology that kills viruses on textile surfaces. It seemed like the perfect thing to have during a pandemic and growth expectations were high. Big brands including Speedo, The North Face and Patagonia signed up to use this technology and HeiQ was busy creating new technologies to broaden its product base.

“Sadly, life hasn’t been easy for the business. In September 2021 the company warned about a big drop in gross margins thanks to price pressures and freight and raw material cost increases.

“This time round, demand has fallen off a cliff. Its customers are sitting on too much stock and China’s strict covid rules caused business to be slow in that country for the textile materials group.

“Uncertainty around the global economy has also caused customers to be more cautious on investing in innovations, which has meant delays to HeiQ’s revenues triggered by partners hitting milestones. Not only will sales be lower than expected for 2022 and margins below forecast, HeiQ has also dished up a warning for 2023’s trading expectations.

“This looks like a classic case of investors being caught up by the hype around a small company’s potential and subsequent realisation that it only takes a few factors to cause a domino effect and leave the business in a pickle.”

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