Not the right time
Shares in Africa-focused airline Fastjet (LSE: FJET) have slumped by 14% today after it released a disappointing trading update. It states that the trading environment in which Fastjet operates has remained challenging and although the yield per passenger figure continues to improve, passenger numbers are still lower than expected. Furthermore, signs of recovery in international services are lacking.
Load factors have fallen to just 47% from 70% in the same period of 2015. As such, new CEO Nico Bezuidenhout is in the process of identifying changes to Fastjet’s fleet and routes flown, ahead of starting work as CEO on 1 August. Worryingly, Fastjet remains cash flow negative and in order to have sufficient working capital to continue, it now requires additional fundraising. It has therefore commenced the initial phases of a fundraising exercise, which it expects to complete next month.
Clearly, this is a challenging period for Fastjet. While it has excellent long term potential, now does not appear to be the right time to buy it, owing to the very uncertain short-term outlook.
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A high level of interest
Also facing uncertainty is UK-focused housebuilder Redrow (LSE: RDW). It has today released a bullish trading statement after recording a pretax profit for the 2016 financial year that’s above the top end of analysts’ estimates. This shows that the company has performed well despite the uncertainty in the run-up to the EU referendum. Redrow has also reported a high level of interest in the days following the vote, although it is clearly still very early days.
Looking ahead, Redrow’s share price could come under pressure if the UK housing market experiences falling transactions and lower prices. So a wide margin of safety is required in order to compensate for the higher risk which the company faces. Redrow’s price-to-earnings (P/E) ratio of 5.9 indicates that its shares offer a favourable risk/reward ratio. Although volatility may be high in the coming days and weeks, Redrow looks good value for long-term investors.
Strong for the long term
Similarly, Old Mutual (LSE: OML) also trades on a relatively low valuation. The financial services company, which is in the process of a managed separation, has a P/E of only 10.5, suggesting that there is upward re-rating potential on offer.
Certainly, Brexit will not change its current strategy, but in today’s update Old Mutual confirms that it may impact on the underlying performance of its business units. This could mean that the company’s share price performance is somewhat volatile in the short run. Its beta of 1.8 confirms that Old Mutual is likely to provide a less stable shareholder experience in the short run.
Regarding its long term prospects, the managed split could create additional shareholder value through greater efficiencies. Old Mutual remains a well-capitalised business, with excellent long term growth prospects, as well as an appealing yield of 3.8%. So, for long term investors who can cope with further currency fluctuations and an uncertain outlook for equity markets, I think Old Mutual remains a strong long term buy.
