What's new
■ Passenger numbers rising
■ Profits to beat earlier guidance
■ Hit from air traffic controllers' strike
■ Agreement reached with Stelios over use of 'easyJet' brand
easyJet's trading update earlier this month - covering the 12 months to end-September - contained plenty of good news for shareholders. Indeed, passenger number grew an impressive 8 per cent year on year and the load factor (passengers as a proportion of available seats) was up 1.5 percentage points to 87 per cent.
Against that backdrop, management now expect pre-tax profit for the year to be slightly above £150m - a big improvement on easyJet's previous guidance range of £100m-£150m. What's more, that outcome takes account of an expected £6m cost from air traffic controller strikes in Spain, Greece and France, as well as a further £60m hit that's associated with the Icelandic volcanic eruption in the spring.
But easyJet faces plenty of issues. To begin with there's the poor punctuality problem at Gatwick. That led founder and largest shareholder, Sir Stelios Haji-Ioannou, to threaten legal action if standards did not improve. Tackling that punctuality issue could mean re-hiring staff which, in turn, may impact easyJet's £190m cost-cutting programme. While the airline's focus on key airports - unlike rivals such as Ryanair - could also present cost problems should any of those airports raise their prices.
On a positive note, the disagreement over the right to use the 'easy' brand were resolved this week with Stelios receiving an annual 0.25 per cent of easyJet's sales as a licensing fee. The payment is fixed at £3.9m and £4.95m for the first two years of the agreement.
Numis Securities says...
Hold. easyJet's pre-close update is encouraging. Improving fundamentals in the airline industry along, we suspect, with a boost from poor UK summer weather, have made for a strong fourth quarter. But Sir Stelios's remarkable campaign of shareholder activism is undermining the attraction of the shares. It is difficult to see marginal new investors being enticed into the shares in such circumstances and we are concerned that existing shareholders may lose patience. Expect cash profits for end-September 2010 of £220m.
Commerzbank says...
Buy. We have increased our full-year 2010 pre-tax profit estimate from £143m to £157m, giving adjusted EPS of 27.8p. And on the back of the favourable yield trend and given that the significant one-off hits will fall away next year (Icelandic volcano, air traffic controllers' strike action), we have also fine-tuned our 2011 estimate upwards from £228m to £239m. Our price target is 500p.
