Market Report: IAG and easyJet fly into fierce headwind

Bad news for Germany’s Lufthansa caused shares in other European airlines to lose pressure. British Airways and easyJet began to list on news of Lufthansa’s reduced profit outlook. Lufthansa’s forecast for full-year operating profit was below expectations and investors were concerned about the impact of pricing and exchange-rate volatility.

Willie Walsh, the chief executive of International Air lines Group, the owner of British Airways, said its Spanish subsidiary Iberia would return to profit in 2014. His update, however, did little to calm investors and IAG was 5.4p weaker at 359p. EasyJet lost 22p to 1,336p and analysts at Cantor Fitzgerald stuck the boot in when they reduced their price target to 1,400p from 1,500p. Cantor also reduced IAG to hold, from buy.

Airline shares were in a holding pattern at the bottom of the benchmark index but the wider market was still edging ahead with traders in an optimistic mood. News that US unemployment had failed to meet estimates pushed equities further skyward as traders knew this meant a reduction in quantitative easing was pushed into the future.

The blue-chip FTSE 100 index completed its ninth consecutive day of gains and edged up 41.46 points to 6,695.66.

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Top of the table was consumer goods and pharmaceutical giant Reckitt Benckiser, which jumped on news of good emerging- market growth and the planned sale of its drugs business, gaining 234p to 4,734p.

Miner BHP Billiton was also strong after an upgrade to its iron-ore production target. Analysts at Morgan Stanley reiterated their “overweight” rating after a “very solid” production update and it advanced 77p to 1,950.5p.

At the other end of the pile, the smartphone (pictured) the microchip designer Arm Holdings took the wooden spoon, down 35p to 1,004p amid concerns about a slowdown in smartphone sales and royalty payment growth, and competition from the likes of Intel – despite avery good set of results for its third-quarter.

Joining Arm near the bottom of the benchmark index was the retailer Sports Direct, which slid 13.5p to 706.5p ahead of its trading update today.

GKN drove up 6.3p to 368.8p when it reported a 34 per cent rise in third-quarter profit. Its auto and aerospace business offset weaker demand at its industrial and military engineering arms.

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Over on the mid-tier, residential landlord Grainger got a boost from analysts at JP Morgan Cazenove.

Thanks to the Help to Buy scheme, better mortgage deals and rising property prices, investors have been piling into housebuilders and DIY groups. Shares in all housing-related stocks have soared recently. But even though Grainger has gained more than 60 per cent since the start of the year, JP Morgan’s Tim Leckie declared that “house price inflation” was “not priced in” to the property group.

Mr Leckie upgraded Grainger to overweight and upped the target price to 225p. He predicted that its full-year results next month “could surprise on the upside”. Grainger has 63 per cent of its £1.8bn property portfolio in London and the South- east, where the boom has taken hold. Investors appeared to agree with Mr Leckie and Grainger rose 2.7p to 186.7p.

Oil and gas group EnQuest agreed a deal with British Gas owner Centrica to buy a 50 per cent stake in the Greater Kittiwake pipeline and production site in the North Sea. Centrica added 1.7p to 364.7p and EnQuest collected 1.9p to 131.7p.

Publisher and events business UBM suffered a 56.5p fall to 687.5p – last place on the FTSE 250 – after reporting that sales growth will be lower, although profit growth is on track for the full year.

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The AIM-listed and US focused oil group Magnolia Petroleum announced four new wells, a new credit facility and a strong production update and jetted 0.2p to 2.7p.

DekelOil provided an update on the construction of its processing mill in the Ivory Coast, which will be one of the largest in West Africa. Operations are planned to start by the end of the year and DekelOil advanced 0.175p to 1.05p.

The shell company Avia Health Informatics is relisting today and plans to raise £500,000. It will change its name to Cientifica and has sold Plain Healthcare to Drury Lane for £1. The new company will be focused on emerging technologies and will concentrate on the market for the applications of graphene technology, which is used in industries including motor sports and aerospace.

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BUY

SHIRE

Snap up shares in the pharmaceuticals group, Citi suggests. The broker thinks it will outline margin expansion and cost reductions at its third- quarter update tomorrow. Shire is Citi’s “preferred name in the specialist pharmaceutical universe” and is rated a buy with a 2,900p price target for shares that are 2,493p.

SELL

DIAGEO

Flog shares in Diageo, Investec insists. The broker is concerned about the spirits giant after its first- quarter update missed forecasts. Investec says it continues to “fear a hangover, come the dawn” as “top- line growth is slowing”. It rates Diageo a sell with a 1,820p price target for shares that are 2,024.5p.

HOLD

PETROPAVLOVSK

Hang on to Petropavlovsk, Liberum Capital advises. The broker noted that the miner’s third-quarter production was hit by heavy rains but said net debt is “still on track to move below $1bn by the year end”. So it rates Petropavlovsk a hold with a 100p price target for shares that are 76p.