BUSINESS LIVE: EasyJet cautious on winter outlook; Rolls-Royce lifted by aerospace; Pets at Home profits fall

Ministers today played down grim warnings from the Bank of England about the UK’s economic prospects.

Governor Andrew Bailey used an interview yesterday to bemoan potential growth being ‘lower than it has been in much of my working life’.

Chief executive of Saga, Euan Sutherland, will step down in January after four years in the role, the group said on Tuesday.

Sutherland will be replaced at the helm of the holidays and insurance group with immediate effect, with group financial chief Mike Hazel taking on the role and the outgoing boss remaining with the group in the short term to ensure continuity.

Deciding on where to put your money at the moment isn’t easy.

The chief executive of Rolls-Royce has revealed plans to build a much more profitable business by targeting a leap in the group’s civil aerospace margin.

Rolls-Royce plans to deliver annual operating profits of up to £2.8billion in the medium term, compared with its forecast guidance for up to £1.4billion this year, and free cash flow of between £2.8billion and £3.1billion.

The FTSE 100-listed engineering giant hopes to achieve this by growing its civil aerospace division’s profit margin to between 15 and 17 per cent, up from 2.5 per cent last year.

Shares in MusicMagpie plunged as hopes over a potential takeover came to an end.

On Monday last week, the second-hand smartphone and DVD retailer said it was in talks with BT and Aurelius, the private equity group which owns Footasylum and The Body Shop, over a possible deal.

EasyJet has warned that first-quarter losses are not expected to improve due to recent disruption caused by the conflict in the Middle East.

The low-cost airline said its winter schedule had been affected by reduced demand for travel to Egypt, and a temporary pause on flights to Israel and Jordan following the outbreak of the Israel-Hamas war.

Air carriers have noted that the uptick in violence across the region since October has weakened the volume of near-term flight searches and bookings across the airline sector.

Mark Crouch, analyst at eToro:

‘The pandemic hit airlines hard, but easyJet’s final results suggest it is ancient history now.

‘The budget airliner has experienced exceptional growth over the past year, swinging from a significant loss to a sizeable profit, while registering meaningful growth on most other key metrics.

‘Like with other airlines, higher fuel costs continue to be a concern but easyJet’s revenue growth has vastly outstripped its increased expenditure.

‘Conflict in the Middle East is likely to disrupt some flight patterns, but the outlook for the rest of the year looks promising, with bookings ahead of where they were this time last year.

‘The airline’s share price has delivered modest returns over the past year, but, given the outlook, we expect to see some upwards movement.’

Frontier Developments shares plunged to their lowest level in nearly a decade amid subdued demand for its latest release.

The Cambridge-based computer game maker’s shares tumbled 20.4 per cent, or 40p, to 156p after it said sales of Warhammer Age Of Sigmar: Realms Of Ruin have been ‘lower than expected’.

As a result, the full-year revenue target of £108million was not ‘likely to be achieved’.

London-listed stocks are trading lower this morning, with industrial metal miners among the top losers on the FTSE 100, while investors await a slew of global economic data due later in the week.

Industrial metal miners have dropped 0.9 per cent, while personal goods led declines among the major FTSE 350 sectors, with Burberry Group falling 1.9 per cent after HSBC reduced the stock’s price target.

Investors will look ahead to UK mortgage data, inflation prints across the eurozone, and a Personal Consumption Expenditures (PCE) report in the United States – the Federal Reserve’s preferred inflation gauge – later this week.

Among individual stocks, Rolls-Royce vowed to become a much more profitable business by targeting a leap in its civil aerospace margin to 15 to 17 per cent from 2.5 per cent last year. Shares of the aero-engineer have jumped 4 per cent.

Metro Bank shareholders have backed a £925million rescue deal that will see a Columbian billionaire take control of the lender.

More than 90 per cent of investors voted to approve the package at a meeting yesterday to secure the bank’s future.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:

‘easyJet has once again shown how its best-in-class operation has set it up for success.

‘The group’s measured expansion at high-calibre airports has proved an especially shrewd move, as has the supercharged effort to push easyJet holidays. In a time when cost and convenience are the ultimate precursors to whether or not customers will splash on a trip, easyJet has been able to scoop up lots of existing demand in its net.

‘Investors are being rewarded for their patience following a bumpy few years with the reinstating of the dividend. The starting point means there’s plenty of room for growth, but will allow easyJet to dip its toe before diving in, which is the right move in such an uncertain environment.

‘easyJet is adamant that households will continue to prioritise travel in the new financial year. There are early indication’s that’s true, but that could change at short notice if the UK folds into recession.

‘The conflict in the Middle East also has the potential to dent performance and will need monitoring closely. The good news for easyJet is that its problems are all outside of its control, which tells the market that its proposition is about as good as it can be- and is waiting to take-off once conditions allow.’

Saga chief executive Euan Sutherland will stand down from the helm of the over-50s tourism and insurance company at the end of January.

Sutherland, who joined in January 2020 and is credited with steering the group through the pandemic, will be replaced by Mike Hazell, who took over as the group CFO just a month ago.

Hazell, 50, will assume the new role with immediate effect

Shaftesbury Capital defied the gloom on the High Street as it cheered a ‘strong start’ to its critical Christmas trading period.

The West End landlord reported ‘high’ levels of shoppers across its estate which includes parts of Chinatown and Covent Garden.

The company said sales at shops, bars and other businesses run by tenants so far in the second half of the year were 16 per cent up on 2019 levels.

Pets at Home Group has secured like-for-like retail growth of about 4 per cent in the early weeks of the third quarter, as Britons gear up for the Christmas season and continue to spend on their furry friends.

The company has doubled down on its digital offerings and increased vet capacity to attract pet owners. It operates stores and a website, which it ramped up during the pandemic, and banks on subscriptions for regularly used items as work-from-home lifestyles spurred demand for pets.

Total group revenue grew 6.5 per cent to £774.2million for the 28-weeks to 28 October, powered by strong sign-ups with vets.

The group, which also offers grooming and veterinary services, said its underlying profit before tax was down 19.3 per cent at £47.8million, as it ramped up investments and grappled with higher logistics costs.

But Pets At Home retained its full-year profit outlook of £136million.

Britain is trying to entice Chinese car makers to set up a global base in the UK in a sign that the government is ready to open up to Beijing despite security fears.

Investment minister Lord Johnson said the country could capitalise on Brexit freedoms to sell Chinese firms’ electric cars to the rest of the world.

‘China have a very powerful electric car industry, they’ve got a lot of excellent technology and they’re making great cars,’ he said.

Rolls-Royce expects to post an operating profit of £2.8billion in the medium term by increasing the margin on its civil aerospace business to 15 to 17 per cent, from 2.5 per cent last year, putting it closer to its rivals.

Chief Executive Tufan Erginbilgic’s masterplan, which has been almost a year in the making, will see a major step change in margins in its business that powers nearly half of the long-haul civil market by around 2027.

‘Rolls-Royce is at a pivotal point in its history. After a strong start to our transformation programme, we are today laying out a clear vision for the journey we need to take and the areas where we must focus.

‘We are creating a high performing, competitive, resilient and growing Rolls-Royce that will have the financial strength to control and shape its own destiny. We are confident in our ability to achieve these ambitions and have a clear and granular plan to deliver on our targets. We have made significant progress, with 2023 profit and cash forecast to be materially ahead of 2022.

‘We are setting compelling and achievable financial targets for the mid-term which will take Rolls-Royce significantly beyond any previous financial performance. This will benefit not just our shareholders but our people, customers and partners. We are building ‘one Rolls-Royce’. A company that can fully realise its potential, ensuring the excellence and innovation that helped shape the modern world, endures long into the future.’

Andrew Bailey yesterday warned the outlook for the British economy is among the worst he has ever seen.

In a gloomy assessment, the governor of the Bank of England said the UK’s growth prospects were weaker than they have been for much of his working life.

But the 64-year-old, who joined the central bank in 1985, insisted it was ‘too soon’ to even discuss cutting interest rates because getting inflation back under control remains ‘hard work’.

EasyJet has warned that full-year earnings are set to take a hit from the ongoing conflict in the Middle East, which has forced the airline to pause flights to much of the region and leaves it expecting a loss for the first quarter of 2024.

The British carrier reported 2023 earnings before interest and tax of £476million, in line with analyst expectations, after a strong year of robust travel demand and forward bookings.

But, easyJet said: ‘Early winter results for FY24 will see an impact from the conflict in the Middle East, which started on 7th October. In our planned winter schedule, flights to Israel, Jordan (both temporarily paused) and Egypt represented 4% of capacity and 10% ASKs.

‘Additionally there was a broader impact on near term flight searches and bookings across the industry, though this seems to be coming back with a recent improvement in trading.

‘Accordingly, despite positive underlying strength, easyJet does not currently expect its Q1 loss to improve year on year. The present booking strength for summer 2024, coupled with supply constraints in Europe, provide a positive outlook for the year as a whole.’