All three firms issued trading updates today, with mixed reactions. Heres my take on todays news and why each company remains a buy.
Small-cap airline Flybe is one of todays biggest risers. The firms shares climbed 10% to 78p this morning, on news that passenger numbers rose by 9.8% to 2.1m during the first quarter, while passenger revenue rose by 11.5% to 147.7m
Flybe continues to suffer from having seven Embraer E195 jets on its fleet that it cannot use. The firm is actively pursuing solutions to this problem but if it fails, the maximum cost could be 80m over four years.
In my view, this is the biggest factor preventing the shares re-rating. Yet Flybes cash balance of 195m means it can afford this loss, given that its underlying business is now profitable.
Flybe chief executive Saad Hammad used to work at easyJet. In my view, he is doing a good job of transforming Flybe into a profitable short-haul airline, focused on niche routes with little competition.
Flybe shares have risen by 37% since the start of May, but I think that there will be more to come when the surplus plane problem is resolved.
Industrial belt and hose specialist Fenner counts many of the worlds biggest oil and mining firms among its customer base. Unfortunately they arent buying as much as they used to. In a trading update this morning, Fenner said that demand for hoses used in hydraulic fracturing (fracking) has remained at very low levels.
Fenner said that full year Group earnings are now likely to be slightly below previous management expectations. Interestingly, Fenner shares didnt fall when markets opened. In fact, they rose slightly.
I can see two reasons for this. Firstly, the firms industrial and medical businesses are performing well, thanks to strong demand and new contracts.
Secondly, I believe todays bad news is already reflected in Fenners share price. With a prospective yield of 6.5%, which current forecasts suggest will be maintained this year, the shares also offer a generous income and remain a medium-term buy, for me.
Shares in BHP Billiton fell by 3.8% this morning, following a poor trading update.
BHP said that group production rose by 9% over the year to June 30, but the firm expects exceptional costs relating to its copper and petroleum businesses to wipe between $350m and $650m from last years profits.
Prices for all of the groups major commodities have fallen heavily over the last year, but so far, BHP has said that it will maintain its dividend. This gives the firms shares a prospective yield of about 6.5%.
The question is whether we are near the bottom for iron ore, oil and copper.
I suspect we might be. Iron ore production growth is slowing, and according to figures from Credit Suisse published in the FT this week, in real terms, the price of iron ore is now only 14 per cent above its 115-year average of $39 a tonne. This doesnt seem expensive to me.
I’d top up with BHP shares at today’s prices, but in case you are not convinced, I’d like to suggest an alternative.
The company concerned is not exposed to the global commodity market and recently reported record full-year profits.
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Roland Head owns shares of Flybe Group, Fenner and BHP Billiton. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.