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Weekly Investment Idea
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The FTSE100 has started the UK session down as did the French CAC and the German DAX. The overall trend for the FTSE100 is to the upside but it has been consolidating for a couple of months now. The largest worry to investors currently is the rising Delta variant infection rate and the agreed global minimum corporate tax rate. European Council President Charles Michel praised the tax deal as a “further step towards a fairer world”, but for investors in multinational companies, the worry is that there will be a hit to their bottom line.
Looking at the FTSE heatmap, the main drag is from Antofagasta Plc (ANTO), International Consolidated Airlines Group S.A. (IAG) and EVRAZ Plc (EVR). Mining and travel related stocks are not equally affected by the COVID-19 but disruptions will occur across all sectors.
Last week we looked into Whitbread (WTB) and they are down today as we approach the lifting of restrictions on July 19th. If the Delta variant infections keep rising, the likelihood that tourism will pick up over the coming weeks is virtually nil, which will be a massive negative for the earnings from hotel stays. Whitbread is the owner of the Premier Inn hotels, which is currently the UK’s biggest budget hotel company.
Prime Minister Johnson will announce the UK Governments final decision to ease lockdown measures at a news conference later today, but the Conservatives commentary leading up to this point has shown no backing down from what is expected. Rules on mask-wearing, social contact, and the instruction to work from home should all be lifted. Which will make the UK a test case for the rest of Europe/World. If we can keep people out of hospitals and protect the NHS mass vaccinations will be vindicated. More than 87% of UK adults have received at least one dose of a COVID-19 vaccine and 66% have received two.
The good news so far is that although the positive tests are rising exponentially, the deaths within 28-day of a test and patients being admitted to hospital are relatively flat.
For a lot of travellers, the idea of going on a week or two-week vacation and then having the possible quarantine restrictions imposed on them is too much. Hotel quarantine can cost £1,750 for an individual travelling alone, which includes the hotel, transport and the tests on days two and eight. For an additional adult or child aged over 12, the cost is £650, or for a child aged between 5 and 12, £325. There is no charge for children under the age of five. So international travel is currently okay for those that could afford to take a month off and pay for the privilege of spending some of that time in hotel. For most people that is just not feasible.
For those that are willing to risk a government U-turn, airlines were reporting a rush in flight bookings from the UK after the government announced that fully vaccinated passengers and their children could return from amber-listed countries without quarantine after 19 July.
EasyJet said flight bookings to Spain, Portugal, France and Greece exploded by 400% and British Airways reported that website traffic almost doubled, with Spanish and US amber destinations becoming the most searched destinations.
British Airways chief executive Sean Doyle welcomed the news but said there is “more work to do” to ease restrictions for international visitors too. “We’re pleased to see this common-sense approach, which is already working safely for many other countries, but there is more work to do,” Mr Doyle said.
“While the quarantine requirement for amber countries is being lifted for fully vaccinated UK travellers, the government needs to quickly extend this to all vaccinated travellers, agree a reciprocal deal with the US, add more countries to the green list and reduce the need for unnecessary, expensive tests.
“This will allow the UK to catch up with other countries and send a message that global Britain is now, finally, open again.”
Heathrow boss John Holland-Kaye echoed the sentiments, adding that the UK “remains cut off” to international businesses.
He said: “This is excellent news that will give a much-needed boost to millions of people across Britain looking forward to a more normal summer and reuniting with family and friends abroad.
As all businesses try and manage their way around the COVID-19 infections and disruptions to staff, British Airways also have a potential staff shortage. At the height of the pandemic, air crew and cabin crew were made redundant or swapped careers. Those that remain are spread thin as the airline adds more flights to reopened holiday destinations just as increasing numbers of crew are being ordered to self-isolate due to rising COVID-19 infections across the United Kingdom.
The BASSA union made a comment on the growing infections within British Airways staff members. “As we head into this weekend, for a variety of reasons, BA are facing a significantly under-resourced period. This has been caused by a combination of factors, increased self-isolation, higher than expected customer loads, and of course an increase to the flying programme.”
There is going to be a period of time where BA need to push to get flights going to meet demand whilst managing human resources. Currently there are no disruptions to flights.
IAG are the parent group of British Airways and currently the group has a market cap of £9,169.49 million but an Earnings Per Share (EPS) of -1.96. The 1-year return is up a decent 23.3% with the 2021 YTD up 11.76%, however, things are not looking technically very good.
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The consolidation period between March 2021 and June 2021 has now been broken to the downside and the subsequent price action shows that old support has now acted as resistance. The price is under the daily 20, 50 and 200 period exponential moving averages and they appear to be acting as dynamic resistance.
A test lower seems the path of least resistance and only a stella couple of months could reverse this price action. If there was a continued uptick in flights across the whole of Europe and restrictions were lifted the bullish scenario would seem more likely. As it is, the likes of IAG needed bookings back in April and for passengers to have been back to normal levels from May until now and then maintained at these levels through the summer holidays. As it is airports like Heathrow report that passenger numbers are still incredibly low.
Investors do not like uncertainty and currently there is nothing but uncertainty. Traders will benefit from trading a blue-chip company and the volatility that is currently reflected in the share price daily movements. Long term, this share should rise. But not before the company posts another terrible earnings for the 2021 Q2. If you can only trade to the long side, its best to step aside and wait for the fundamentals to pick up.
If you can trade both ways and are prepared not to marry a position, there will be opportunities to follow this current down trend on an intraday chart.
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Whilst the share price is below 190-191 on the ActivTrader platform the direction of travel is bearish. Using a stochastic indicator (10,3,3) and the 20,50 and 200 period moving averages to indicate when the price is overbought and finding dynamic resistance there should be opportunities to test to the previous swing low prices from the end of June 2021 and then mid-February 2021, as there is not a lot of market structure to offer support.
If the current price action was actually a look below the support before a return back into the range lows, I would be very keen to go long at a daily close above the 200 period ema, as the share price is still extremely low due to the amount of disruptions caused this last 18 months. This would be kept in-line with the overall trend in the FTSE100 and a lot of the time when the index is rising, the constituent parts are able to rise too. If you want to be like Warren Buffet, you need to buy quality stocks at value and British Airways as a brand is regarded as high quality and at some point, these COVID-19 disruptions will pass.
