Why easyJet shares remain friendless
20th November 2018 11:19
by Richard Hunter from interactive investor
A bounce back from the October sell-off has almost unravelled entirely following negative reaction to these results. Richard Hunter, head of markets at interactive investor, has the detail.
Amidst weaker global markets overnight which have followed through to London, easyJet's share price has been nudged lower despite a resilient full-year performance.
The airline industry has, historically and notoriously, been about survival of the fittest. Indeed, even recently the demise of Alitalia, Monarch and Air Berlin has played into easyJet's hand in reducing competition.
Even now, though, the reported gap between revenue and cost per seat indicates a wafer-thin margin which could be upset by any number of factors, including ones outside of the company's control, such as the oil price, industrial action and flight cancellations arising from adverse weather.
This is quite apart from the airline trading rules which may fall out of Brexit, although easyJet seems well advanced in anticipating this possibility.
Source: TradingView (*) Past performance is not a guide to future performance
For the most part, the numbers themselves are impressive. The fly in the ointment at the moment seems to be an increase in the cost per seat, but elsewhere increases in passenger numbers, revenue per seat and a renewed focus on ancillary income have all driven total revenues up by 17% and headline pre-tax profits are significantly higher by 42%.
Cost savings in excess of £100 million and improved metrics in terms of earnings per share and return on capital, will provide much comfort, while the increase to a dividend with a projected yield of 4.6% is another attraction for investors.
However, it remains to be seen whether the update provides enough of a fillip to reverse what has been a turbulent time for the shares, which have fallen 8% over the last year, as compared to a 5.3% dip for the wider FTSE 100, and have seen a significant 32% decline just over the last six months.
The company itself has given an upbeat outlook for the new financial year and, if the current operating performance can be maintained, the market consensus of the shares as a 'cautious buy' may become subject to future upgrades.
*Horizontal lines on charts represent levels of previous technical support and resistance.
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