Summary
- In Q1, the UK company's pre-tax loss was £133 million (down sharply year over year).
- In the period, top-line sales increased by 83% to £1.474 billion.
- The airline's earnings estimates have risen and we confirmed our valuation.
In conjunction with our comments on Ryanair's Q3 , today we are back to look at e asyJet ( EJTTF , ESYJY ). In our initiation of coverage called Short Turbulences, Long Upside , here at the Lab, we knew the company could suffer at a stock price level. Unfortunately, this is what happened and easyJet delivered a negative return of 12%, very much in line with the S&P 500 development. The aviation sector has suffered one of the most intense disruptions caused by COVID-19 and is still struggling to recover. While in the US traffic has returned to the levels of 2019 both on the domestic and intercontinental front, Europe is still behind with the exception of some low-cost carriers. Despite that, we believe that easyJet is set to fly, and our buy rating is supported by: 1) strong booking for 2023 Easter and summer, 2) a compelling valuation, and 3) better aircraft allocation to enhance the company's margin.
Q1 Results
The UK company's pre-tax loss was £133 million in the first quarter, down sharply year-on-year from the £213 million delivered in Q1 2021/2022. The accounts benefited from strong growth in passengers and revenue per ticket. In detail, during the period, top-line sales increased by 83% to £1.474 billion. Revenue per seat grew 36% in the quarter and the trend is expected to continue in 2023. The load factor was 87% compared to the 77% achieved last year, thanks to increased customer demand coupled with unrestricted travel.
Looking at the past, at November's end (close of the financial statements for the company), e asyJet announced the third consecutive annual loss, weighed down in particular by activities interruption before the 2022 summer. While the company is aware of the uncertain macro outlook around the world, based on current demand levels and strong bookings, easyJet has a better outlook than current market expectations for fiscal 2023. In number, they are expecting to achieve a profit of £126 million before tax. The Easter outlook, which falls within the company's third accounting quarter, is very favorable, as is the summer season. In terms of capacity, the group expects 38 million seats for the staggered first semester, or 25% more than the previous year, and expects 56 million seats in the second semester (+9% over a year).
Source: easyJet Q1 results
It is also important to emphasize the following:
- Q1 traveler's growth was at plus 47% year-on-year;
- Ancillary sales continue to increase and were up by 36% at £20.12 per seat;
- Net debt was further reduced as well as financing costs;
- During the company's Q&A, the company's CEO declared that e asyJet was selling " enough seats to fill five aircraft every minute during peak hours in the winter.
Conclusion and Valuation
Following our easyJet numbers in October, we continue to reiterate our preference for the low-cost operator. Within our universe coverage, we believe that Ryanair is safer, but easyJet offers a better capital upside opportunity. In addition, easyJet's biggest rival scores consistently worse in customer satisfaction surveys. Over the short term this is not a problem; however, this difference might matter over the long-term horizon. With an operating EBIT margin set at 8% and a higher WACC of 10%, we reduce easyJet valuation at 560p per share, confirming our buy rating target. Key risks are included in Mare Evidence Lab's initiation of coverage.
For further details see:
easyJet Expects A Summer Season Rebound