What's new:
■ Further passenger growth in January
■ Expects bigger first-half loss
■ Allocated seating a success
Budget airline easyJet (EZJ) stunned the market last year as one of the more dramatic re-ratings of recent times continued. Its share price doubled, and chief executive Carolyn McCall is getting plenty of credit for attracting more business travellers. Passenger numbers rose over 4 per cent during the first quarter, and by only slightly less in January. A lot of the good news, however, does appear priced in.
Despite an encouraging start to its financial year, easyJet admits that a late Easter in 2014 will likely lead to a loss of between £70m and £90m in the seasonally weaker first half. It was just £61m last year as Easter fell on 31 March, generating an extra £25m of revenue. Increased charges at regulated airports and rising maintenance costs for its ageing fleet have driven easyJet's cost per seat up by 1.2 per cent, too, although the maximum 2 per cent rise predicted for the full year is less than expected.
Elsewhere, smart capacity management and the successful introduction of allocated seating helped grow revenue per seat by 1.4 per cent at constant currency during the first three months. A new base in Naples, operational in the spring, is also expected to mimic the success of the Hamburg base developed by the airline last year.
Liberum says...
Hold. EasyJet is delivering an attractive combination of growth and returns for shareholders via annual and special dividends. We see this profile as sustainable, with easyJet's brand, pan-European network and established positions in key congested airports providing barriers to entry. But while the long-term fundamentals remain attractive, further short-term upside is reliant on earnings upgrades, on which we are cautious. We are inclined to put new money to work elsewhere, and with the shares having reached our 1,600p target price, downgrade our recommendation to hold from buy.
Numis says...
Add. EasyJet's first-quarter update was positive and cost guidance is better. We expect strong yield growth due to the quality of its network (the right slots at slot-restricted airports), taking further market share from legacy carriers, increased business traffic and allocated seating. The more positive UK economic outlook should also help. As a result, we increase our full-year pre-tax profit forecast from £538m to £556m, giving adjusted EPS of 111.8p, and see further opportunity for upgrades as the revenue outlook for the second half comes into clearer focus.
