Interactive Investor

ii view: easyJet on course to make annual profit

10th February 2023 16:17

Keith Bowman from interactive investor

This low-cost airline is up by around 40% year-to-date. We assess prospects. 

First-quarter trading update to 31 December

  • Revenue up 83% to £1.47 billion
  • Headline loss before tax of £133 million, improved from a Q1 loss last year of £213 million
  • Net debt down 8% to £1.1 billion

Guidance:

  • Expects first-half loss to be significantly less than last year

Chief executive Johan Lundgren said: 

"We have seen strong and sustained demand for travel over the first quarter, carrying almost 50% more customers compared with last year. This strong booking performance, aided by the airline's step changed revenue capability, has driven an £80m year on year boost in the first quarter with continued momentum as customers prioritise spending on holidays for the year ahead. 

"In summary, we expect to see our winter loss reduce significantly over the first half compared to last year. This will set us firmly on the path to delivering a full year profit, where we anticipate beating the current market expectation enabling us to create value for customers, investors and the economies we serve."

ii round-up:

easyJet (LSE:EZJ) is a short-haul European airline operating a fleet of 320 Airbus aircraft.

It operates across more than 920 routes to over 30 countries and from just over 150 airports. 

For a round-up of this latest update announced on 25 January, please click here.

ii view:

Started in 1995, the Luton headquartered airline today employs over 4,000 pilots among its more than 13,000 staff. Owning around 60% of its aircraft and leasing the balance, it strategy includes transforming its revenue streams by growing ancillary sales like baggage and driving down costs through avenues such as investing in more fuel efficient aircraft. Revenue diversity also includes expanding its easyJet holidays business in partnership with major hotel brands such as Accor SA (EURONEXT:AC) and InterContinental Hotels Group (LSE:IHG)

For investors, rising interest rates and a cost-of-living crisis need to be remembered. Costs such as fuel have more than doubled year-over-year during this last quarter, geopolitical tensions continue to run high, while the many other factors outside of management’s control like bad weather remain.  

On the upside, strong consumer appetite to travel in the wake of the pandemic is evident given management’s improved view of anticipated first-half losses. Initiatives to raise ancillary or additional revenues like baggage are seeing success, with plans to add further services like onboard Wi-Fi on the drawing board. Sales for its holiday business soared in this latest quarter, while cash and equivalents of £3 billion and a fall in net debt year-over-year reassure when considering the carrier's finances.

Airline stocks are highly cyclical, so will respond well to signs that the economic outlook is improving.

A 40% share price rally so far in 2023 reflects better results, increased demand and a more optimistic economic outlook. Now, easyJet shares are close to the current analyst consensus price target of 480p per share, and this cyclical stock will need further signs of improvement to justify further buying.

Positives: 

  • Growing its holidays business
  • Strong focus on costs

Negatives:

  • Uncertain economic outlook
  • Many factors outside of management’s control can hinder performance

The average rating of stock market analysts:

Strong hold

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