EasyJet brings back dividend

EasyJet (EZJ) chief executive Johan Lundgren hailed “the best summer really ever in the company’s history” for a strong set of results that came in at the upper end of previous guidance. 

The £633mn improvement in headline pre-tax profit – a swing from a loss of £178mn last year to a gain of £455mn this year – was attributed to much higher revenue. Capacity, passenger numbers and ticket prices all improved, leading to airline revenue per seat growing by 21 per cent to £79.84. Although costs per seat also rose by 11 per cent due to higher fuel costs, this meant it made an operating profit of £4 per seat, as opposed to a slight loss last year. Add on to this a 51 per cent gain in ancillary revenue due in part to the doubling of sales at its holidays business, and you can see why Lundgren was so pleased with its performance.

Strong cash generation also allowed it to repay its £670mn of net debt and it finished with net cash of £41mn. It plans to distribute £34mn through the reinstatement of its dividend, with a 4.5p per share payout equating to around 10 per cent of after-tax profit. EasyJet expects to double this figure next year, pledging “regular returns” to shareholders, where possible.

This is important, given the increased amount it is spending on planes. It agreed a deal with Airbus for 157 new aircraft for delivery from 2029 onwards, adding to the 158 due before then. Capex is forecast to step up considerably – from £1.3bn in the current financial year to £1.9bn in 2026. The company says it has options in terms of funding this, though – either through cash, sale and leasebacks or through raising new debt.
 
EasyJet is also bullish on the outlook for the current year. Capacity is increasing by a further 11 per cent over the winter period and 8 per cent during the summer, and it expects a further 35 per cent growth in its holidays business as it launches in France and Germany. 

Despite a 30 per cent gain since the start of the year easyJet's shares trade at just 7-times FactSet consensus forecast earnings. Although it faces some short-term disruption on Middle Eastern routes, its continued improvement and the growth of the holidays arm means we also think its prospects still look good. Buy.

Last IC view: Buy, 524p,18 May 2023