Investor Chronicle: Experian, easyJet, Hyve

Buy: Experian (EXPN)

The natural income of the data services group’s consumer services business increased by 17%. Nilushi Karunaratne wrote.

In the year ended March 31, Experian’s organic revenue increased by 4%, and the 17% increase in consumer services offset the flat performance of the business-to-business (B2B) business.

Momentum is led by North America, the B2B sector benefits from low interest rates and higher mortgage refinancing activities, and the consumer services business gained 9 million new members. Together with the strong performance in Latin America, this offset the weakness in the UK and Ireland and the EMEA/Asia Pacific region, leaving adjusted operating profit flat at US$1.39 billion (£977 million).

Looking ahead, Experian has guided natural revenue growth of 7% to 9% for the current fiscal year and 15% to 20% in the first quarter.

Steve Clayton, manager of HL Select UK Growth Shares Fund, said: “Their expectations for double-digit revenue growth and profit margin growth this year should be welcomed by investors.” “Experian is in adversity. The record of growth in China has accelerated significantly as the economy emerged from the pandemic, which sets it apart.”

However, this flexibility does come at a price. The current trading price of these stocks is 31 times the expected return in 2022. However, given the group’s high profit margins and long-term structural demand for its data and analysis tools, this valuation is not unreasonable.

Selling: Easyjet (EZJ)

The vaccination rate offers some hope, but the forecast for international air traffic this year is expected to increase. Mark Robinson wrote.

According to the latest analysis of the International Air Transport Association, by 2021, the after-tax industry will lose 47.7 billion U.S. dollars (33.8 billion pounds), which is definitely an improvement compared to the total loss of 126 billion U.S. dollars last year when the number of global passengers fell by 60% .

However, in addition to losses, the real problem for carriers is the scale of cash outflows. This year’s cash consumption is estimated at 81 billion U.S. dollars. Most large airlines have raised enough funds to cover their intermediate cash commitments, but many smaller airlines had thin balance sheets and poor liquidity before the pandemic, so further government intervention and/or industry consolidation are possible. Since several European airlines (the most famous of which are Alitalia, Air France/KLM and Lufthansa) have been supported by governments within the European Union, the state aid clause has lapsed.

Much depends on the speed and degree of utilization improvement, as well as the local clinical situation and the resulting regulations are the main determinants. The analysis of the International Air Transport Association estimates that by 2021, the global passenger load factor (as a percentage of available seat mileage) will reach 67%, which is basically the same as the previous year. However, despite the widespread cancellation of routes, it will be lower than in 2019. dramatically drop.

Given that the growth of international air traffic this year is insignificant, airlines with a higher proportion of domestic routes will inevitably surpass the entire industry. This is good news for American airlines, but the European short-haul aircraft market has been hit hard.

You can see this clearly with Ryanair’s March year-end data, which details a 81% drop in revenue to 1.64 billion euros (1.41 billion pounds). The budget executor revealed that traffic has fallen from 149 million (before Covid-19) to 275 million, while the load factor has dropped by 24 percentage points. All of this is largely predictable, but considering various variables, management believes that it cannot provide any meaningful guidance for FY22.

The group hopes to deliver the first Boeing 737-8200 fleet before the end of this month. Management believes that this aircraft “will further expand the cost gap between Ryanair and all other European airlines in the next decade.” The group has been using narrow-body aircraft to serve its short-haul routes, but the Boeing model provides more benefits in terms of fuel consumption and reduction of greenhouse gas emissions. Considering that some long-haul airlines were already considering postponing the delivery of wide aircraft or canceling existing orders even before the pandemic, the last environmental protection point is very important.

The last thing airlines need is that more planes are idling while still relying on international travel to sustain their lives. Financial Times It is estimated that, depending on the specific maintenance requirements, the cost of sealing the aircraft may be as high as $30,000.

According to the current acceptance rate, by the third quarter, approximately three-quarters of the North American and European population had been vaccinated. However, despite the undoubtedly suppressed demand, thousands of holidaymakers have booked trips to the “green list” countries, but worry that the industry will not see the full benefits of the key summer vacation, which will bring the industry Further pressure. Balance sheet. We are almost in June, and the official government policy is that unless you have a good reason, you should avoid traditional summer hot spots, such as Spain, France, Italy and Greece.

However, Portugal is another popular destination, and it is included in the government’s list of countries with no quarantine restrictions on travel. Given the number of flights it usually flies to the country, this is undoubtedly good news for easyJet. Management stated that the airline has the ability to increase its operational capacity to 90% of its current fleet in a short period of time. In fact, after the green light destination was announced, the carrier added 105,000 seats.

Like its rival Ryanair (Ryanair), the details of easyJet’s mid-term data for March are also chilling: an overall loss of 701 million pounds; a load factor reduction of 26.6 percentage points; a decrease of 89% in passenger numbers. In a sense, all of this is foreseeable, but further relaxation of restrictions is unlikely to lead to a sudden recovery of pre-pandemic numbers, so airlines may have to endure another off-season, while “liquidity” remains It is the slogan of the entire industry. The prospects are still intertwined with the local clinical situation. Until we have a clear explanation in this regard, it is best to avoid using this sector.

Hold: HYVE

Despite various lock-in measures, the event company Hyve achieved profitability in the first half of the year. Lauren Almeida wrote.

The relaxation of the lock is such as Hyve. Although the pandemic confinement has had an impact on the entire industry, the group’s adjusted operating profit for the half-yearly period reached 31.3 million pounds.

Hyve is encouraged by the “speed of vaccine launches in countries such as the United Kingdom and the United States.” Indeed, the group is already looking forward to the gradual return of international travel in its statement, which it believes will help stimulate participation in its activities.

It has already organized events in Russia, China, India and Turkey in the first half of the year, and hopes to launch more events in Western economies in the second half of the year. Add in the £62.9 million in insurance proceeds from cancellation and extension claims so far this year, and Hyve should be able to recover some of its income before the end of this period.

Most of the company’s semi-annual performance is focused on the return of face-to-face events, but Hyve also positions itself as the potential growth of virtual devices. It has hosted more than 80 online events and acquired its digital counterpart Retail Meetup for £18.5 million at the end of last year as part of its “omni-channel strategy.” Now, its division of the global community has revenue of 2.1 million pounds in the first half of the year, which is about 10% higher than expected.

This can explain why Peel Hunt analysts have also been infected by the error of “cautious optimism”, thereby raising the company’s rating from “hold” to “increase.” Their forecasts indicate that by 2021, adjusted pre-tax profits will rise slightly to 4.1 million pounds, and then increase to 19.80 million pounds in 2022. Hyve said that the current transaction price is between the “recovery” and the adjustment. /West mode scene, although its presence in India may distort the future vision.

Now, the group looks slim because it has sold its business in Kazakhstan and is well supported by insurance claims, while it raised 126.6 million pounds in the same period last year. The debt covenant was also renegotiated, so its leverage ratio and interest protection ratio were replaced by a liquidity contract of 30 to 40 million pounds lasting until the end of March 2022. For now, the balance sheet seems to be stable enough, and Hyve is indeed like it deserves a cautious optimist attitude.

Chris Dillow: The real risk of inflation

How seriously should we take the 2% inflation target set by the Bank of England?If we do, then we should stop worrying inflation And worry that interest rates will rise, because the World Bank will raise interest rates to ensure that the inflation rate remains at around 2%.

However, the market has not done so.Five-year breakeven inflation As I wrote, although the market expects the three-month interest rate to rise by nearly one percentage point by mid-2025, the ratio is still 3.5 percentage points, close to the highest level since 2000. Of course, this is based on RPI inflation, but even taking into account the fact that it usually exceeds CPI inflation, it is higher than the World Bank’s inflation target.

There are good reasons for this. In the next few months, the inflation rate will rise, because last year’s oil price decline and the reduction of value-added tax in the hotel service industry will be replaced by data, not by price increases. The World Bank cannot avoid this situation just because it takes time for interest rates to reduce inflation.Instead it Say It will not raise interest rates until “conclusive evidence” proves that the inflation target is “sustainably” achieved. This shows that it can tolerate more than 2% inflation for a few months. This is completely consistent with the work of the World Bank.its exchange Due to “shocks and disturbances”, “inflation temporarily deviates from the target” is allowed.

However, this is not the only reason why the break-even inflation rate is higher than 2%. Another reason is that the Prime Minister may raise the inflation target: remember, it is him, not the bank, that decides. This move was welcomed by some advocates, such as James Smith of the Resolution Foundation, Joe Gagnon and Christopher Collins of the Peterson Institute for International Economics, and Lawrence Bauer of Johns Hopkins University .

One way to do this is that changes in supply and demand patterns after Covid may require major changes in certain relative prices. And to the extent that some companies are unwilling to cut prices, this change is easier to achieve when the inflation rate is high. Cynics might add that raising the inflation target will be a way to prevent interest rates from rising and thus protect house prices.

Personally, I am surprised that there is very little debate about the target level of inflation. But this may change, so the market has reasonable pricing risks.

There is another risk. Facts have proved that the force of inflation will be so great that the World Bank can only maintain the inflation rate at 2% by destroying the economy.Its economist estimate A 1 percentage point increase in bank interest rates eventually reduced the inflation rate by about 1 percentage point, but at the cost of cutting output by as much as 0.6%. If we see inflation plus weak trend growth, the World Bank may choose to make a mistake in tolerating inflation. However, this situation may be a sign that the economy is not functioning properly: If weak growth produces severe inflation, it is very wrong.

Therefore, there is a risk of inflation, and it is reasonable to price it. However, these risks do not come from currency growth, wages or commodity prices, but from structural failures in policies or the economy.

Chris Dillow is an economics commentator for “Investor Chronicle”

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