Interactive Investor

Must read: FTSE 100 dividends, BT, easyJet, Watches of Switzerland

Our head of investment rounds up the morning's big news.

16th May 2024 09:13

by Victoria Scholar from interactive investor

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    GLOBAL MARKETS

    European markets have opened mixed, with the DAX trading flat while the FTSE 100 is in the red. The UK blue-chip index is getting dragged down by results from Sage Group (The) (LSE:SGE) and easyJet (LSE:EZJ). Plus, a number of UK stocks go ex-dividend today including BP (LSE:BP.), GSK (LSE:GSK), Kingfisher (LSE:KGF) and Tesco (LSE:TSCO)

    Last night it was a positive close on Wall Street, with the S&P 500 and the Nasdaq gaining over 1% each and the S&P 500 closing above 5,300 for the first time.

    BT 

    BT Group (LSE:BT.A) reported full-year adjusted EBITDA up 2% to £8.1 billion, roughly in line with analysts’ estimates for £8.125 billion on revenues up 1% to £20.79 billion, also largely matching estimates for £20.87 billion. Free cash flow beat analysts’ expectations and the FTSE 100 telecoms giant is increasing its dividend by 3.9% to 8p per share, sending shares soaring today. BT is on track or its biggest one-day gain since November 2021.

    Also boosting the stock, BT provided new upbeat guidance for significantly increased fresh cash flow. It is aiming to more than double its normalised free cash flow over the next five years. Plus, it plans to achieve a further £3 billion of gross annualised cost savings by the end of FY29. 

    BT struck a positive tone towards the broadband market, saying it will recover over the medium term. BT also said it enjoyed strong Openreach customer demand for FTTP (fibre to the premises) in the fourth quarter. 

    Allison Kirkby took to the helm as CEO in February 2024 and appears to be trying to win over shareholders, attempting to boost its struggling share price with a better-than-expected free cash flow performance, a focus on cost savings, and by increasing the company’s dividend payout. She’s been facing a tough battle since a lot of major investors have been shorting the stock – investors placed a record £300 million bet against BT, according to an FT report this week, which will be getting squeezed today. 

    Her strategy appears to be focusing on the UK by investing £15 billion in its full-fibre UK broadband rollout, revitalising its lacklustre business division, and continuing with its major cost cutting programme. Kirkby said she’s exploring a number of options for all of BT’s international footprint – one option is to consider partnering opportunities. 

    However, high levels of spending and borrowing as well as stiff competition in the sector from alternative network providers have punished BT’s share price, which is down by around 18% year-on-year. There are also concerns about the potential merger between Vodafone and Three, which would hurt BT’s consumer brand EE.

    EASYJET 

    Lee Wild, Head of Equity Strategy, interactive investor says: “With half-year results pretty much in line with April’s update, big news from easyJet today is a change of CEO. After more than six years at the airline, chief executive Johan Lundgren will leave the company in 12 months’ time, handing over to finance director Kenton Jarvis who has impressed during his three years at the airline.

    Lundgren is leaving the business in good shape, although recovery from the pandemic has been a turbulent affair. Nevertheless, losses for the typically tougher winter period narrowed by £61 million to £350 million, benefiting from capacity growth and flat costs. easyJet flew 36.7 million passengers in the six months to 31 March, filling 86.7% of the 42.3 million seats available. Passenger revenue grew by 17% to just over £2 billion and revenue per seat (RPS) by 5% to £69.87. It was also good to see the holidays business grow 42% and hear management predict a £170 million profit for the full year, although that’s still a little less than consensus forecasts, so more to go for there.

    Predictions of only “slightly” better RPS in the third quarters appears to chime with recent comment around softer Spring pricing from Jet2 and Ryanair, so expect continued focus on progress here in the months ahead.

    easyJet chiefs still believe they’re on track to meet an ambitious medium-term target of pre-tax profit in excess of £1 billion. It’ll be interesting to see if it happens on Jarvis’s watch.

    WATCHES OF SWITZERLAND 

    Watches of Switzerland Group (LSE:WOSG) said it is ‘cautiously optimistic’ about fiscal 2025, sending shares soaring by around 15%. This comes within the context of a significant slowdown in global demand for luxury spending and a profit warning from the company earlier this year. Just yesterday shares in Burberry slumped 6% after full-year profits plunged and sales fell sharply in China and America. 

    Watches of Switzerland reported fourth-quarter group revenue up 4% to £380 million, ahead of consensus with particular strength in the US where sales grew by 14% to £190 million, fuelled by strong demand for pre-owned certified Rolex watches. While consumers may be less inclined to splash out on more expensive brand-new luxury watches, the slightly cheaper second-hand market appears to be continuing to enjoy strong momentum. Total pre-owned and vintage revenue doubled in the fourth quarter year-on-year. 

    However, the macroeconomic headwinds weighed on sales in the UK and Europe where revenue declined 4% year-on-year to £190 million. Tourist spending in the UK has taken a hit on the back of the lack of VAT free shopping. 

    Watches of Switzerland said 2025 full-year revenue is expected to hit between £1.67 and £1.73 billion, representing growth of 9%-12% in constant currency. It is aiming to more than double sales and adjusted EBIT by the end of FY28 as part of its long range plan.

    Even after today’s boost, shares are down by over 40% year-to-date following a profit warning in January and ‘volatile trading’ last year. There’s a mixed assessment from the analyst community on the stock with 5 hold recommendations versus 7 buys.

    These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

    Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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