Little ol’ Aer Lingus. Who’d have thought the airline could ever be so interesting — notwithstanding that anything can happen when Michael O’Leary is involved and IAG’s €1.36 billion takeover of the Irish flag carrier is cleared for take-off pending the pledging of Ryanair’s near-30 per cent stake.
The British Airways group has spent more than six months trying to persuade the Irish government that despite a forthcoming general election and the impending centenary of the Easter Rising, an IAG deal with Aer Lingus is in everyone’s interest.
But apart from about €100 million of operating profits, what is BA/IAG getting by adding a fourth small leg to its Spanish brands, Iberia and Vueling?
Ireland has US “favoured nation” status with passenger customs pre-clearance — a valuable queue-dodge at JFK or Newark. This would be added value for IAG’s customers but Ireland’s exclusive status is not for ever and the US government could dilute its preferential position by clearing other pre-clearance facilities. Aer Lingus also brings with it some much-prized Heathrow slots. While IAG has pledged to keep running services to Ireland, no one can ever second-guess the competition authorities and whether they will demand any divestment of slots at Heathrow.
There are other issues. Aer Lingus’s strong transatlantic corporate trade could be said to be down to US companies fleeing there for tax purposes. Washington does not like that any more. Willie Walsh, IAG’s chief executive, slashed much of the cost out of Aer Lingus when he was its chief executive. What was left was sorted by the recently departed Christoph Mueller. That does not leave Mr Walsh with the easy gains he had in the Iberia takeover.
IAG has been riding a bounteous zephyr. Profits nearly doubled last year and they look set to rise by half again in 2015. But the cost wins in sorting out Iberia will begin to unwind, Latin American markets promised by the Spanish acquisition don’t look so healthy, Vueling is in a budget market that is getting tougher and BA’s north Atlantic bread and butter can only get more competitive once Delta-Virgin Atlantic get their act together. As with any capricious wind, there is as much downdraft as updraft.
Passengers 77.3m
Aircraft 418
MY ADVICE No need to get on
WHY The takeover of Aer Lingus is just one of a number of imponderables for a group whose shares are already coming off recent highs
More than any other major stock on the market, Serco is a punt on its management. So the appointment of a new chairman and his effect on the current executive is a serious issue.
Sir Roy Gardner’s track record is well reported. History has not been kind to his term as chief executive of Centrica. His biggest non-executive job was being chairman of Compass, whose revitalisation is bound up in Sir Roy’s appointing Richard Cousins as chief executive.
Serco does not need a new chief executive. It has had one for the past year in the larger-than-life Rupert Soames, who carved his big City reputation transforming Aggreko, from which he plucked his wingman, Angus Cockburn, who is Serco’s finance director.
Sir Roy was not at the back of the queue when they were handing out strong opinions. Mr Soames knows his own mind more than most. If Serco needs another revenue-raising exercise, Mike Clasper, the senior non-executive who has brought in Sir Roy, could always sell seats to view future board meetings.
Serco shares closed down ¼p at 137p. Not hugely negative, but neither a ringing endorsement. That values Serco at £1.5 billion, which has to be a guess given that Mr Soames has confessed that he cannot accurately predict where the troubled outsourcer’s earnings will settle.
If Mr Soames is allowed the time and space he has demanded, businesses will be sold, contracts will be won and Serco will recover. Impatient investors and the arrival of Sir Roy raise the interesting “if”.
Revenue £3.9bn
Loss £1.3bn
MY ADVICE Speculative buy
WHY So many ifs and buts yet the upside could be strong
LED lighting is a bit like the electric car. Everyone knows it is great technology and good for the environment. It’s just that it’s stupidly expensive.
One solution is for a manufacturer to create complex leasing/purchasing deals to enable the consumer to take delivery while defraying the cost. This is one of the issues in an LED lighting market in which Dialight has discovered most of the others at one time or another, as a string of profit warnings and an oscillating share price attest.
The investment jury has long been out on Dialight, whose main market is supplying long-lasting LED lights in important locations: oil rigs, petrochemical plants, on top of tall telecoms masts.
That has been exacerbated by the illness of Roy Burton, its chief executive of ten years. He has stood down and Michael Sutsko, from the senior management of Laird, a fellow electronics group, has taken the job.
Dialight shares are trading on about 15 times this year’s earnings. The share price, down 9p at 738½p, is in any case trading at about half where it was two summers ago. The issue for Mr Sutsko is to turn the switch on operationally and get the City to see the light.
Revenue £159m
Profits £18m
MY ADVICE Avoid
WHY Investors need some more light shed on its future
And finally . . .
IG Group did an excellent job of saying absolutely nothing in a trading statement to celebrate the end of its financial year. Conversely, people have had plenty to say about IG after recent outages, and more especially after hundreds of its spread-betting punters found themselves on the wrong end of the Swissie forex debacle in January. We have to wait a couple of months to hear about the financial impact of that on IG. In the meantime, however, its dominant market position is still driving its shares to all-time peaks.
