2023-04-19 13:06:39 ET
Summary
- Clientele’s willingness to pay more will support easyJet accounts.
- easyJet reported solid numbers and once again de-leveraged its Balance Sheet.
- Higher guidance, and so we confirm our long-term view.
We are not surprised to see a plus 3% at the time of writing. This morning, easyJet ( EJTTF , ESYJY ) released its six-month update which ended on the 31st of March, and we could self-referentially call our analysis with a 'Told You So' title. Why?
In our last analysis, we anticipated some current trends that are happening. Have a look at our easyJet most recent publication called we expect a Summer Season Rebound , as well as the latest Ryanair follow-up where we anticipated an expected loss on the fiscal year's fourth quarter results due to the Easter holidays absence in March.
Indeed, before analyzing the company's details, it is key to report the following management comments.
While easyJet remains mindful of the uncertain macroeconomic guidance, based on current high levels of strong bookings and demand, the company : " anticipates exceeding current market profit expectations of £260 million for FY23". So, easyJet's accounts are improving and the company raised the forecast both for the entire year, which will end in September.
Regarding the Easter period, it positively reported on the latest results, and during the analyst call, easyJet's CEO said that the Easter period saw a solid operational performance with superb booking momentum. In this period, despite the French strikes, the company fleet was used for 99.8% capacity and easyJet operated approximately 1,600 flights on average per day. The company is back to the pre-COVID-19 level in the UK and continues to upgrade its growth expectations.
Half-year results
The company delivered solid results in its Q2. In detail, passengers grew by +35% on a yearly basis and the company's load factor increased by +10 basis points at 90% capacity in March 2023 (Fig 1). This signed the third consecutive month of growth. What is key to report is the higher ticket yield of approximately +30% compared to last year's results. The company's total revenue reached £2.69 billion and was also supported by higher ancillary revenue (+16%). However, easyJet recorded a significant fuel price increase coupled with an unfavorable USD development vs the British Pound which led to a plus 71% cost per seat compared to the same period last year. As regards this first three-month period, the low-cost company expects to significantly reduce its losses. In the forecast released today, net income should be included in a range between £405 and £425 million, with a year-on-year decrease of around £120 million. But expectations for the summer are now much higher (as we already anticipated) and the carrier sees a gross profit of around £260 million. Commenting on the forecasts, CEO Johan Lundgren underlined that the positive trend is generated by a demand that remains strong from a public that does not want to give up traveling and prefers companies that offer better value for money deals such as easyJet (and Ryanair , also buy rated here at the Lab).
(Fig 1)
Fig 2
The company has a strong balance sheet with an investment grade status and easyJet's net debt position reached £0.2 billion at March-end thanks to a €500 million bond that was recently repaid (Fig 3).
Fig 3
Conclusion and Valuation
Consumers are " prioritizing spending on travel " (and we are not surprised about that after two years of pandemic outbreaks). The higher ticket prices are partially driven by higher fuel costs, but the airline industry has been further favored by the clientele's willingness to pay. Last time, we emphasized how easyJet was set to fly, and our investment rating was 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. Related to our point 1) the company already sold its 80% capacity for the summer and concerning our point 3) easyJet's capacity is 8% higher than the pre-COVID-19 level . Here at the Lab, we were already ahead of the Wall Street consensus estimates, so we decide to leave unchanged our earnings forecast. On the valuation, we already reduced easyJet's valuation to 560p per share with a long-term core EBIT margin of 8%. Therefore, we confirm our overweight target. Key risks are included in Mare Evidence Lab's initiation of coverage .
For further details see:
easyJet: Time To Fly