FTSE 100 flat as Canada follows Australia in raising rates, Crest Nicholson slips amid property market gloom, Wizz Air’s expansion plan starts to pay off and FirstGroup shrugs off loss of TransPennine franchise

“Canada and Australia don’t often have a central role in moving the markets but the decision by both countries’ central banks to resume rate hikes this week has reverberated through the financial system and helped stoke fears about sticky inflation,” says AJ Bell investment director Russ Mould.

“Much of the narrative sustaining the uneven if material rally in stocks this year has been that the battle with inflation is nearly won by the central banks. If the Federal Reserve follows the lead of its Australian and Canadian counterparts then this could be badly undermined and the next Fed decision is now just a week away.

“The FTSE 100 was unchanged in early trading as a recovery for resources stocks helped make up for weakness elsewhere on the index.

“After the jolt of the first annual fall in UK house prices in a decade, the warning of ‘storm clouds’ over the property market from the Royal Institution of Chartered Surveyors felt stark.

“Housebuilder Crest Nicholson certainly seemed glum in its latest trading update. The call for further state support, particularly for first-time purchasers, may feel a bit rich given the housebuilding sector has benefited from ultra-low interest rates, rising property prices and the Help to Buy scheme for years, but it does reflect the tough outlook for the sector.

“Higher rates for longer would depress demand, but whether providing incentives to stoke demand or letting property prices settle at levels which are more affordable is the right approach is open to question.”

Wizz Air

“Wizz Air is one of the most ambitious airlines operating today, eager to increase market share while also extending its network so it can fly more people to more places.

“Significantly expanding one’s fleet of aircraft while also being loss-making is a calculated risk for Wizz Air – aggressively grow while rivals are trying to recover from the pandemic.

“To some extent, the risk has paid off with a big jump in the number of passengers as it had much greater capacity to capitalise on the surge in travel demand post-pandemic. The big challenge is to now turn a profit which is no easy task given ongoing cost pressures.

“It needs to have more bums on seats per flight, find additional ways to generate revenue beyond the cost of a ticket, and to keep a lid on costs. It says that average fares across both the ticket and add-ons such as baggage fees are already trending higher.

“There is a lingering feeling that Wizz Air is still aiming for the stars, despite having already invested in more aircraft. That means acquisitions could be on the agenda.

“Even though it is still losing money, the company’s performance during and post-pandemic is probably strong enough to convince shareholders that its growth plans are working, and so it might have enough support to raise a significant amount of money to turbocharge that growth through a corporate deal.

“EasyJet has previously been seen as the logical takeover target for Wizz and there is still merit in parking the two companies together, although Wizz would need to make a generous offer if it wants to stand a chance of sealing a deal. Owning EasyJet would give Eastern Europe-focused Wizz Air a greater presence in the Western European market and a position in the package holidays industry.”

Firstgroup

“Bus and rail outfit FirstGroup shrugged off the loss of the TransPennine Express franchise and the continuing impact of industrial action as it benefited from strong travel demand.

“Regulation does not always have a negative impact and the company has benefited from a government scheme to cap bus fares – which has helped boost passenger levels.

“Alongside the better-than-expected annual profit, perhaps even more significantly given the recent loss of the TransPennine franchise, the company said current trading and the outlook for 2024 were in line with expectations.

“The company’s strong balance sheet is testament to careful husbandry of its finances through the pandemic and gives the company scope to reward shareholders with buybacks and to look at acquisitions, perhaps even a bid for rival UK bus operator Arriva.

“The company still needs to focus on improving performance and reliability if it isn’t to face further government sanction and also see passenger numbers drop off as people are turned off by delays and cancellations.”

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