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The FTSE 100 steadies. Are these 20%+ share price gains tempting?

Alan Oscroft
Graph of price moves

The FTSE 100 is still looking steady, holding at around 5,700 points as I write on Tuesday. And there’s even a host of 20%+ share price gains on the day.

Among the day’s FTSE 100 share price gainers, easyJet (LSE: EZJ) peaked at a 26% jump during the morning. That’s a rise of 47% since close on Friday.

It’s down to the announcement on Monday afternoon that easyJet has secured a £600m loan via the government’s Covid Corporate Financing Facility. The airline also said it has made a “utilisation request to fully draw down on its $500m revolving credit facility, secured against aircraft assets.”

The company says it expects to have access to cash reserves of approximately £2.3bn by 9 April. That puts easyJet in what looks like a relatively comfortable position, at least in the short term. But it could be a long time before our skies are filled with planes once again, which the firm recognises. It added: “Given the possibility of a prolonged grounding easyJet will continue to consider further liquidity and funding options.”

FTSE 100 bargain?

Even after Tuesday’s gain, easyJet shares are still down more than 50% since the Covid-19 pandemic started to unfold, while the FTSE 100 has fallen around 25%.  So are we looking at a recovery buy now? The company expects to release a trading update in the second half of April, so you might want to wait for that. I expect it to be pretty dire, with any useful outlook statements being largely impossible.

For me, it would come down to whether I’d buy easyJet shares in more normal times. And though I reckon it’s one of the better airlines, I’d never buy an airline. That’s because they’re largely driven by external forces beyond their control.

FTSE 250 share gains

Most of the day’s other big gainers where outside the FTSE 100, with FTSE 250 firm Hammerson (LSE: HMSO) among the biggest. Hammerson is a real-estate investor specialising in shopping centres and retail parks, and it has suffered badly.

During the pandemic, Hammerson shares have lost almost 70% of their value. And that’s after the shares gained 26% on Tuesday (and even peaked above 30% at one point). Even FTSE 100 property stocks are suffering, and they’re theoretically more resilient.

The near kill-off of the UK’s retail sector will, I think, go on for longer than many people might hope. And it means I’d have to see a really obvious super-bargain in order to consider investing in the sector now. Is that Hammerson?

Looking cheap?

Hammerson shares are on a trailing price-to-earnings ratio of only around three. Forecasts for a 35% earnings per share fall would lift that to four. But forecasts are generally based on the most recent guidance from a company. And Hammerson’s latest at the end of March told us the company had received just 37% of the UK rent billed in the second quarter. The forecasts look too optimistic to me, and I can easily see the current year turning out considerably worse.

Any talk of dividends looks overly upbeat to me too, as the firm has already abandoned its final dividend for 2019. Hammerson has also retracted its dividend guidance for 2020, so I’d rate current forecasts as worthless guesswork.

These two stocks might be surging right now, but I’d steer clear and stick to reliable FTSE 100 shares instead.

The post The FTSE 100 steadies. Are these 20%+ share price gains tempting? appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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