Today’s results made for an interesting and varied read, and one to which I think the markets have somewhat overreacted as the share price currently sits at 931gpx, a 7.18% plummet. To briefly summarise the results:-
- Costs have been reduced by 4.6% for the your (including fuel)
- Capacity has grown 6.1%
- Load factor was 93.9% for the quarter,
- Passengers flown in the quester was 22m, 9.4% higher than 2015 levels (20.07m)
- Easyjet states ‘Capacity is expected to grow by around 8% for the financial year ending 30 September 2017. Approximately 45% of seats are now sold for the first quarter, in line with last year’
- Revenue per seat has decreased 8.7%, slightly higher than the 7.5% noted at Q3 based on 65% of bookings.
- Exchange rate movements are expected to have a £55m adverse affect for FY2016
- Exchange rate movements are expected to have a £90m adverse affect in FY2017.
Carolyn McCall, EasyJet Chief Executive, has not been one to shy away from external problems affected the airline, and has commented “The current environment is tough for all airlines, but history shows that at times like this the strongest airlines become stronger. That is why we will continue to invest for the long term success of the business, establishing even stronger market positions, delivering excellent customer service and establishing new revenue opportunities for the future” I am one to agree with such comments. Times like these tests a company’s ability to adapt to problems regardless of scope.
Fine the reduction in revenue per seat is a bit of a stinger and was the fly in the ointment. Despite this, consider how Easyjet has responded to several threats this year, such as:-
- Terrorist attracts
- French air traffic control strikes
- Currency devaluation.
Despite the above problems, capacity continues to grow and load factors remain high. Revenue per seat is being squeezed, but Easyjet is responding to this by cutting costs. This is not a company which is slow to respond and take a beating, but one that moves to dodge the punches to maintain its health.
Lets’ put these results into perspective for the share price. Profit after tax for Easyjet in 2013 was £398m. Profit after tax (stated to be 17%) this year is expected to be £410m. since 2013 Easyjet’s dividend policy has changed to 50% of profit benefiting investors. The airline has increased capacity significantly since that time and responded to threats in a proactive manner. But, the share price as at 4th January 2014 was 1565gpx compared to 935gpx as I write this.
So a company that is stronger than in 2013, making greater profits that in 2013, continues to increase capacity at an annual rate of more than 5%, is benefiting from Fuel price reductions that outweighs the adverse effects of foreign exchange movements….is priced at 68% of 2013’s share price.
Easyjet to me remains a screaming buy and my target price remains unchanged as per my last Easyjet update – http://bit.ly/2dvYUts. I won’t quote Warren Buffet, but if others are being fearful…