Daily market update: Frasers, Ryanair, Wizz Air, Oracle and Halma

Despite continuing uncertainty about the fate of any peace deal in the Middle East, the FTSE 100 forged ahead on Thursday.

As has often been the case during the Iran conflict, the UK’s flagship index has found support from its collection of energy companies and more traditionally defensive names. Miners and other China-linked stocks were lifted by data suggesting the country is investing heavily in AI and consuming raw materials at a healthy rate.

Selling in AI-related stocks, of which London has very few, put shares on Wall Street under pressure yesterday and that’s extended to Asia today.

Oil prices remained steady despite the apparent unravelling of the US-Iran ceasefire. That is partly helped by sluggish demand from China with imports falling as the country relies on its own stockpiles and expands its use of alternative energy.

After May’s US CPI reading came in above 4% for the first time in three years, close attention is likely to be paid to US factory gate prices later. These typically act as a canary in the coalmine for higher consumer prices down the line, so a higher-than-expected number could heighten market concern about inflation.

Frasers

The market seems displeased that Frasers has gone all-in with plans to gobble up Hugo Boss.

Frasers has form in snapping up bargains and Hugo Boss ticks the right boxes for a business trading on a cheap valuation and in need of salvation. However, Frasers typically does pre-pack deals to cherry pick assets when a business goes into administration. That method typically means it gets a bargain and isn’t on the hook for any unwanted extras.

Hugo Boss is down but not out. Sales are in decline, but margins are improving, and it is picking up business from high-value shoppers trading down from expensive luxury brands. Frasers is increasingly going upmarket and obviously sees the potential to use Hugo Boss’ brands to accelerate this plan.

Ryanair

It feels as if Ryanair has looked at every possible way to squeeze money out of customers and the only idea that hasn’t cut the mustard is charging to use the toilet.

Overall, passengers might have grumbled about extra charges, but they’ve typically paid them. The competition watchdog isn’t entirely happy about Ryanair’s tactics and is now looking to see whether one seat-related charge has breached consumer law.  

Ryanair requires parents to sit with children under 12 and charges them to do so, even though its website refers to ‘free reserved seats’ for this age group. Taking a family on a foreign holiday is expensive at the best of times and suffering these sorts of charges on a plane takes the biscuit.

Wizz Air

While Wizz Air’s reported net profit has evaporated, its full-year operating profit was better than expected and that’s given its share price a small lift.

It’s a small relief to investors who have otherwise had to stomach one of the most challenging periods for the airline industry since the pandemic.

The Middle East conflict has cast a dark cloud over the sector, creating uncertainties around cost structures and fuel availability later this year. It’s no wonder that Wizz Air isn’t giving any forward earnings guidance.

Oracle

In the latest sign investors are being more cautious when it comes to AI, Oracle shares fell sharply in pre-market trading despite the company beating expectations with its latest quarterly results.

Oracle also raised its profit forecast but the fly in the ointment was a plan to raise more money to fund its substantial AI spending. Unlike the so-called hyperscalers like Amazon, Alphabet, Microsoft and Meta, Oracle was not sitting on a pile of cash or generating huge amounts of cash flow heading into this spending cycle.

This puts it more at the mercy of markets when it comes to funding any investment, and investors seem to be baulking at plans to raise a further $40 billion through debt and new shares to fund its ambitions.

Halma

Halma is paying the price for setting high standards for itself. Despite delivering better-than-expected full-year results, investors didn’t like conservative guidance for the new financial year.

Revenue growth is expected to slow considerably from the 12-month period which ended in March, and margins are expected to be broadly unchanged. This could represent a sensible dose of conservatism from management against an uncertain backdrop.

For the time being, markets are clearly taken aback given Halma, thanks to its focus on safety critical and regulatory driven markets, has been prized for its consistency.

While this was still on display given the 23rd consecutive year of profit growth and 47th consecutive year of dividend growth of 5% or more, the subdued outlook has created doubt over whether this track record will be sustained in the future.