Investment View: Don't get flights of fancy over the airlines' shares

Wrapping up some of the more prominent companies to update on their financials following the recent torrent of trading statements, let's have a look at easyJet.

Which doesn't make happy reading for me. I last featured the low-cost airline back on 6 July, when the shares stood at 531p. I said take profits, which has been one of the worst calls I've made. EasyJet shares have jetted past 900p and beyond. Ouch.

That's despite the OFT acting to curb the silly game low-cost carriers play by quoting rock bottom prices and then adding on all sorts of extras, like admin and processing fees. Then there's the continued fighting between the company and its founder, leading shareholder Sir Stelios Haji-Ioannou. Which is costing the group its chairman, City grandee Sir Michael Rake.

The announcement of his departure was the reason for the shares' weakness yesterday, when they fell 9.5p to 935.5p. I've said before that Sir Stelios ought to just buy the company back if he's not happy with the way it is being run, although he has raised the right points on some issues (particularly executive pay). Given the surge in the share price, that could now be prohibitively expensive.

The constant sniping with its biggest shareholder doesn't appear to have rattled easyJet's performance. Au contraire. The recent trading statement was given rave reviews by the market, particularly because of the growth in business travellers, which helped drive a 9.2 per cent rise in first-quarter revenues.

As a result, and with about 80 per cent of first-half seats booked, the airline expects to limit its first-half loss to between £50m and £75m. That compares with £112m for the same period last year. Profits come in the much busier second half.

For the year to end September easyJet's shares trade on 12.8 times forecast earnings, with a forecast yield of 2 per cent. It's a company doing well, but that's just a little too rich for my blood given the economic uncertainties, continuing issues with Sir Stelios and the regulators.

I admit to getting it wrong. But I would expect the shares to settle down a bit from here. If you're going to buy, buy on weakness.

I was similarly sceptical about the clumsily named International Consolidated Airlines Group, which is British Airways and Iberian. Well, to be fair, you'ld hardly amalgamate the name into, erm, Briberian.

Its shares, while 3p off at 220p yesterday, have also been flying high. Its health is improving and the combative chief executive Willie Walsh has even managed to get a deal with Spanish unions over restructuring.

All the same, I'm still out of this one. Generally I dislike the sector, for good reasons. If you look back at the record of airlines and what they have provided for investors over the (sorry about the pun) long haul, it's been something of a … well I won't say disaster, but you know what I mean.

The only airline I would be investing in is the same one I advised holding at the time of my last look at this sector: Ryanair. The stock was trading at about €4 then. It's now at €5.56. So my tipping hasn't been a complete loss. I'm in the camp that can't bear its chief executive, Michael O'Leary, or his business practices. But from an investment perspective one can't argue with the results, which again defied expectations yesterday. And even though the shares aren't as cheap as they were, at 15 times earnings but with a sector-leading 3 per cent forecast yield, it's the proven high flyer. It's a long-term hold.

Elsewhere WH Smith continued to follow its path of sales falling but profits (likely) rising. In the 20-week period to 20 January, sales at stores open at least a year tumbled by 5 per cent.

Total sales were down 4 per cent. The declines are accelerating. In the first 10 weeks total group sales were down 3 per cent with sales at outlets open for a year down 4 per cent.

However, Smith's makes good money on what it does sell. It still has shops dotted up and down Britain's embattled high streets, with a visible (and handy) presence at transport hubs. The stores generally are loud and garish and if you try to buy a paper the checkout assistants will push sweets on you, and your kids will be all over the stuff stacked up by the tills.

But margins have held up, costs are on a tight leash and the company says it has further opportunities for growth.

It's hard to argue with the chief executive Kate Swann's recipe for success. She is off in the summer, but her strategy might even see sales heading higher sometime in 2014.

The shares are still not all that expensive, even though at 666.5p they are close to an all-time high. For the year ending 31 August they trade on 9.5 times forecast earnings, yielding a forecast 4.9 per cent. So keep holding Smith's.

News
The surrealist comedian at the Q Awards in 2010
people
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Sport
Christiano Ronaldo enjoys his opening goal
champions leagueLiverpool 0 Real Madrid 3: Ronaldo and Benzema run Reds ragged to avenge thrashing from their last visit to Anfield
Arts and Entertainment
Awesome foursome: Sam Smith shows off his awards
music22-year-old confirms he is 2014’s breakout British music success
PROMOTED VIDEO
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
Arts and Entertainment
Contestants during this summer's Celebrity Big Brother grand finale
tvBroadcaster attempts to change its image following sale to American media group
Extras
indybest
News
Wilko Johnson is currently on his farewell tour
people
Arts and Entertainment
Sarah Dales attempts to sell British Breeze in the luxury scent task
tvReview: 'Apprentice' candidate on the verge of tears as they were ejected from the boardroom
News
Call me Superman: one of many unusual names chosen by Chinese students
newsChinese state TV offers advice for citizens picking a Western moniker
News
ebooksAn unforgettable anthology of contemporary reportage
Voices
New look: Zellweger at Elle's Women in Hollywood awards on Monday
voicesRenée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity, says Amanda Hess
News
Let’s pretend: KidZania in Tokyo
educationKidZania lets children try their hands at being a firefighter, doctor or factory worker for the day
Life and Style
CHARGE BOOSTER: Aeroplane mode doesn't sound very exciting, but it can be a (phone) hacker's friend. Turning on the option while charging your mobile will increase the speed at which your phone battery charges
techNew book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone
Arts and Entertainment
Julianne Moore and Ellen Page are starring together in civil rights drama Freeheld
film
Voices
'Irritatingly Disneyfied': fashion vlogger Zoella
voicesVicky Chandler: Zoella shows us that feminism can come in all forms
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?