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easyJet gets Monarch boost

The budget airline says current-year trading has been boosted as "capacity leaves the market"
November 21, 2017

This marks the final set of easyJet (EZJ) results for chief executive Carolyn McCall, who will leave the business at the end of November for broadcasting giant ITV (ITV). Ms McCall will be replaced by former deputy chief executive officer of travel firm TUI (TUI), Johan Lundgren. Mr Lundgren certainly has a task ahead of him, as analysts continue to fret about the rising levels of capacity in the airline market, and the downward pressure this is causing on passenger yields.

IC TIP: Hold at 1,358p

On reflection, last year was not a terrible one for the budget airline. Annual revenues actually landed higher than some analysts’ expectations thanks to a record number of passengers – up 10 per cent to 80.2m – and a slightly higher load factor, up from 91.6 per cent in the previous financial year to 92.6 per cent in the reported period. Strong cost control and savings of £85m meant the £101m in adverse currency movements was partly offset, although adjusted pre-tax profits ultimately fell 17 per cent year on year to £408m.

easyJet said recent first-quarter revenue trends were more positive than expected thanks to “some capacity leaving the market” – taken as a reference to the departure of Monarch Airlines and other carriers. Now, first-half revenue per seat is expected to grow somewhere in the low to mid single digits – at constant currencies – compared with a 4.5 per cent drop in the 2017 financial year, as that extra capacity weighed. Headline cost per seat excluding fuel should rise by 1 per cent, in line with the reported period.

Also on the horizon is the imminent completion of the group’s €40m (£35m) deal to purchase some of Air Berlin’s operations at Berlin Tegel airport. The acquisition is expected to add 25 A320 aircraft leases to easyJet’s roster, as well as incur one-off costs of around £100m during the 2018 financial year, which should lead to initial losses of around £60m.

Analysts at Liberum expect pre-tax profits of £452m for the year ending September 2018, giving EPS of 93.4p, up from £408m and 82.5p in FY2017.

EASYJET (EZJ)   
ORD PRICE:1,358pMARKET VALUE:£5.39bn
TOUCH:1,357-1,359p12-MONTH HIGH:1,444pLOW: 907p
DIVIDEND YIELD:3.0%PE RATIO:18
NET ASSET VALUE:705pNET CASH:£357m
Year to 30 SepTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20134.2647810133.5
20144.5358111545.4
20154.6968613955.2
2016 (restated)4.6750711153.8
20175.0538577.440.9
% change+8-24-30-24
Ex-div:01 Mar   
Payment:23 Mar