Top UK Stocks to Watch: Pandemic pushes Ryanair to record annual loss

Ryanair still cautious about a recovery in travel later this year, GSK hopes its coronavirus vaccine candidate will be approved this year, Diploma shares pop as it raises expectations, Vistry ups its housebuilding target, and Hollywood Bowl has high hopes as it reopens its doors today.

UK

Top News: Ryanair eyes recovery from September if vaccinations continue

Ryanair said it believes there will be a ‘strong recovery in air travel, jobs and tourism’ if Europe can push ahead with its vaccination programme and have the majority of its adult population jabbed by September.

The airline industry has been ravaged by the pandemic. Ryanair said it carried just 27.5 million passengers in the year to the end of March 2021 compared to 149 million the year before as travel remained severely restricted under lockdown.

Revenue plunged to just EUR1.64 billion from EUR8.49 billion, pushing it to a record EUR815 million annual loss after tax from a EUR1.00 billion profit the year before.

‘We are encouraged by the recent release of multiple Covid-19 vaccines and hope that their rollout will facilitate the resumption of intra-Europe air travel and tourism this summer. If, as is presently predicted, most European populations are vaccinated by September, then we believe that we can look forward to a strong recovery in air travel, jobs and tourism in H2 of the current fiscal year (FY22). The recent strong increases in weekly bookings since early April suggests that this recovery has already begun,’ said Ryanair.

The results come on the same day as the UK lifts the ban on foreign travel, although the situation for holidaymakers remains far from simple due to the traffic light system, mixed advice from ministers and changing guidelines from other countries.

The airline said capacity across Europe is expected to be lower for the ‘foreseeable future’, but Ryanair believes it can capitalise and grow during this period. The company said it will start to take delivery of 210 new Boeing 737 planes this year, having raised its order from 135 planes originally, which should help with its ambition as they cost less to run than its existing fleet.

Still, Ryanair is far more pessimistic about the recovery prospects than some of its peers. Ryanair is expecting to carry just 5 million to 6 million passengers between March and June and although bookings have jumped as countries ease restrictions, Ryanair warned there is ‘close to zero’ visibility for the rest of the year and reiterated its belief that it will carry toward the lower end of its 80 million to 120 million passenger number guidance this year.

‘We also (cautiously) believe that the likely outcome for FY22 is currently close to breakeven – assuming that a successful rollout of vaccines this summer allows a timely easing of European government travel restrictions on intra-European traffic in time for the peak travel period of July/August/September,’ Ryanair said.

Ryanair said it has ‘one of the strongest’ balance sheets in the industry, with EUR3.15 billion in cash at the end of March and most of its fleet unencumbered.

Where next for Ryanair shares?

Ryanair trades above its ascending trend line dating back to early November. The price rebounded off the 100-day sma last week and off the 50-day sma giving conviction to the bulls.

The RSI is also supportive of further upside, in bullish territory and pointing higher. 

Today’s 2.2% jump higher has brought 17.60 into target. A move above this resistance could see 18.70 come into play, a level last seen in August 2017. 

On the flip side, it would take a move below 17.00 to negate the near-term uptrend. A break below the 509 sma at 16.50 could see the sellers gain traction. A break below 16.00 the 100 sma, which has been a solid support could see the start of a much deeper sell off. 

GlaxoSmithKline sees ‘strong immune responses’ in Covid vaccine trial

GlaxoSmithKline and Sanofi are continuing to test its potential coronavirus vaccine after the latest results from a Phase II trial showed ‘strong immune responses across all adult age groups’, with hopes it could be approved for use before the end of the year.

The two companies said the adjuvanted recombinant vaccine candidate triggered a strong neutralising antibody response in all adult age groups in a Phase 2 trial inv. It also said that the high immune response from previously infected patients after just one jab suggested the candidate could be suitable as a booster jab.

The positive results will now see GSK and Sanofi progress the trial to Phase 3 ‘in the coming weeks’.

‘Our Phase 2 data confirm the potential of this vaccine to play a role in addressing this ongoing global public health crisis, as we know multiple vaccines will be needed, especially as variants continue to emerge and the need for effective and booster vaccines, which can be stored at normal temperatures, increases,’ said Thomas Triomphe, the executive vice president and head of Sanofi Pasteur.

GSK and Sanofi hope that the vaccine can be approved in the fourth quarter of 2021 assuming the Phase 3 trial goes to plan.

GSK shares were trading 0.3% lower in early trade this morning at 1367.5.

Diploma raises guidance after all businesses return to growth

Diploma reported strong growth in revenue and profits during the first half of its financial year, beating expectations, prompting it to pay a dividend and raise its guidance for the rest of the year.

Diploma shares were trading 6.3% higher in early trade at 2918.0, just below the all-time highs seen in April.

The company, which makes a variety of specialist products like seals, filters and cables that are used by a wide range of industries and supplies the life sciences sector with a range of products and services, said revenue was up 29% in the six months to the end of March to £365.2 million. That was slightly ahead of the 27% growth expected.

Revenue growth was primarily driven by acquisitions with underlying growth coming in at 2%.

The Seals business in North America returned to growth by the end of March while underlying revenue overseas was down 2%. Revenue from the Controls Sector was down 1%. The driver of growth came from the Life Sciences unit, with revenue up 14%, mainly thanks to Simonsen & Weel.

Its adjusted operating margin improved to 18.2% from 17.6%, with profits jumping by one-third to £66.6 million. Statutory operating profit rose 10% to £46.3 million.

‘The group has delivered a strong first half performance, with positive momentum across all sectors and an exceptional contribution from acquisitions. Underlying growth trends are very encouraging with revenue in all three sectors returning to growth during the period, and this trajectory has continued into the second half,’ said Diploma.

Free cashflow was up 57% in the period at £34.3 million. Diploma said it is paying an interim dividend of 12.5 pence per share. It said the fact it is growing payouts faster than earnings demonstrates its confidence going forward after it deferred dividends last year when the pandemic erupted.

Diploma said it now expects annual revenue this year to be ‘slightly better’ than 40% ahead of last year, with its margin set to continue improving toward 19%.

Vistry Group shares hit record high as it plans to build more houses at higher margin

Housebuilder Vistry Group said it is on track to build significantly more houses at a higher margin in the current financial year as it released an update ahead of its annual general meeting later today.

The company said it should construct around 6,500 units in 2021 compared to only 4,652 in 2020. Vistry said this was well ahead of its original expectations and said they should be built at a better margin.

Vistry shares were trading 1.9% higher in early trade this morning at 1318.8, representing a new all-time high for the stock.

The upgrade comes after a strong start to the year, with weekly private sales since the start of 2021 running 21% higher than the year before. Plus, its forward sales book strengthened to £2.7 billion.

Vistry said the improved performance and outlook means it should deliver annual adjusted pretax profit of £325 million in 2021, up from the previous goal of £310 million. That would be a significant improvement from the £143.9 million delivered in 2020 and the £193.8 million delivered in 2019 before the pandemic hit. It said its expectations for 2022 remain unchanged.

‘The group continues to see strong demand across all areas of the business. Our sites are operating well, and we are seeing the strategic benefits of the enlarged group coming through. We anticipate that our half year performance will be significantly ahead of our previous expectations in terms of profit and cash,’ said the company.

The company also said Vistry Partnerships, which works with others to build houses, is ‘making excellent progress’ toward delivering over £1 billion in annual revenue in 2022 from £728 million in 2020, with an operating margin of at least 10%.

Hollywood Bowl confident it can recover to pre-pandemic levels

Hollywood Bowl Group said it expects customers to flock back to its ten-pin bowling and mini golf sites across the UK as reopens its doors today and that it is well positioned to bounce back to pre-pandemic levels swiftly.

The company’s sites were closed for 75% of the six months to the end of March. That unsurprisingly pushed revenue down to just £12 million from over £69 million the year before and pushed it to a pretax loss of £14.5 million from a £15.2 million profit.

‘We are excited to be reopening and welcoming our customers and team members back from today. We are emerging from this challenging year of continuous lockdowns in a strong position to capitalise on the opportunities to invest in and significantly grow our portfolio of ten-pin bowling and mini-golf centres in prime locations and are pleased to be starting construction on three new centres later this year,’ said chief executive Stephen Burns.

‘The considerable demand we saw from customers when we reopened after the first lockdown and the strength of our pre-bookings for May gives us confidence that we can recover to pre-pandemic performance levels as families flock back for fun, celebrations and affordable activities,’ he added.

Hollywood Bowl said average spend per game in October, when it was allowed to briefly reopen its sites, was in-line with pre-pandemic levels while the inclusion of lane dividers means it can operate all bowling lanes when it opens today, maximising capacity.

Although times are tough right now, Hollywood Bowl remains confident over the long-term is. The company said it is now planning on opening 14 to 18 new sites by 2024, double its original target, as it continues to refurbish existing ones.

‘The response from our customers at our previous reopening, and ahead of our 17 May reopening, gives us confidence in the enduring strength of customer demand for inclusive family entertainment experiences. With the vaccine rollout well under way and the impact this is having, we are confident that the group can recover to pre-pandemic performance levels,’ said Burns.

Hollywood Bowl shares were trading 1.3% higher in early trade this morning at 240.0.

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