Rolls-Royce bounces back despite ongoing engine issues, Ryanair sees record month, Ashtead on track, Watches of Switzerland says luxury demand bottoming out

“A decent session last night on Wall Street failed to extend to Europe on Tuesday, with most of the major indices only showing marginal gains,” says Russ Mould, Investment Director at AJ Bell.

“This might reflect a sense of caution from investors ahead of major economic news this week from the US in the form of jobs, services and manufacturing data, as these could have a major influence on interest rate decisions.”

Rolls-Royce

“Investors appear optimistic that Rolls-Royce is not going to be caught up in a new crisis after Cathay Pacific found a fault with its engines used on A350 jets. While Rolls-Royce’s share price wobbled yesterday as the news first emerged, it bounced back strongly in early trading on Tuesday.

“That rebound isn’t guaranteed to last, particularly as there is still a lack of detailed information on the incident and how many other engines might be affected.

“Another scandal could scupper Rolls-Royce’s recovery efforts. A lot of people will remember the company’s previous crisis involving its Trent 1000 engines, which damaged the British engineer’s reputation and led to significant extra costs.

“Since then, it has worked tirelessly to get back on track while also trying to make the business run more efficiently and operate in a leaner way.

“It has enjoyed considerable share price gains in the past few years and investors will be keeping their fingers crossed that the Cathay Pacific incident is an isolated one. Given this is still a fluid situation, shareholders need to brace themselves for more share price volatility.”

Ryanair

“Ryanair showed it isn’t having any problems getting bums on seats on its aircraft, reporting a record month in August for traffic. Load factor – the percentage of seats for which it has sold tickets – remained at 96%, a ratio which many airlines could only dream of achieving.

“Given this momentum, it’s not surprising that the business is thinking more strategically. Imitation is the sincerest form of flattery and it looks like Ryanair has its sights on copying EasyJet in setting up a package holiday business, having seen the success of its rival.

“As always, with Ryanair it is all about the income. Rather than set up a package holiday arm to please consumers looking for a more convenient way of booking a week in the sun, media reports suggest Ryanair boss Michael O’Leary sees a bundled service as a way of charging higher fares.”

Ashtead

“Sometimes when a company has been under pressure it’s enough that things haven’t got any worse. That has proved to be the case with Ashtead’s latest quarterly results.

“While the three-month period could hardly be characterised as stellar, the equipment hire company is sticking with its full-year forecasts.

“Ashtead has been able to eke out some growth and the hit to profit is largely linked to lower levels of used equipment sales, which is not its core business.

“There may be some concern about Ashtead’s reliance on ‘mega projects’ in the US which are linked to incumbent President Joe Biden’s infrastructure programme – something Donald Trump might seek to unwind if he wins in November

“This would lead to greater reliance on the local commercial construction markets which are seeing lower levels of activity as the US economy slows.

“In turn, this might make achieving the relatively ambitious growth targets associated with the Sunbelt 4.0 five-year plan, unveiled earlier this year, more difficult.

“Increasing the volume of locations, a key plank of Sunbelt 4.0, into a market experiencing headwinds could leave Ashtead exposed. Although an expanding footprint in ‘speciality’ rentals – including areas such as power, flooring and climate control – would add some useful diversification.”

Watches of Switzerland

“Posh watches seller Watches of Switzerland believes the market for luxury timepieces and jewellery has bottomed out in the UK.

“Such confidence is backed up by plans for the roll-out of more stores and the company is setting a March 2025 date for the opening of a flagship store on Old Bond Street in London. This opening has been pushed back twice already.

“There are still risks on the horizon – not least a Budget next month which has promised to put the burden on those with the broadest shoulders. This could have a dampening effect on demand for luxury goods.

“While the threat has not materialised yet, Rolex’s decision to acquire Swiss watch retailer Bucherer could see it limit the amount of product the manufacturer sells through third parties like Watches of Switzerland.

“The integration of Roberto Coin – which has the exclusive rights to distribute the eponymous Italian jewellery across North America, the Caribbean and Central America – is said to be going well and will help to diversify Watches of Switzerland’s exposure.”

These articles are for information purposes only and are not a personal recommendation or advice.