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easyJet - 20% capacity in Q1 2021

Nicholas Hyett, Equity Analyst | 17 November 2020 | A A A
easyJet - 20% capacity in Q1 2021

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

easyJet plc Ordinary 27 2/7p

Sell: 625.60 | Buy: 626.60 | Change 23.80 (3.92%)
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easyJet's total full year revenue fell 52.9% to £3.0bn, reflecting a 50% drop in passenger numbers to 48.1m. The group reported an underlying loss of £835m, compared with a £427m profit last year. Once exceptional costs are taken into account this loss rose to £1.3bn.

easyJet expects to fly no more than 20% of expected capacity in Q1 2021, but is not offering more detailed financial guidance.

The shares fell 3.9% following the announcement.

View the latest easyjet share price and how to deal

Our View

For the time being air travel remains severely subdued, and easyJet expects to fly a very limited schedule over the first quarter of its 2021 financial year. But what matters is really the outlook for next summer, and to a lesser extent spring.

An effective vaccine roll out could mean a faster recovery than previously anticipated, but it's not guaranteed. There's also the risk the economy slides into a sustained recession, holding back the recovery in air travel.

At the peak of the crisis easyJet took steps to shore up the balance sheet by turning to shareholders for extra cash. While this diluted the ownership of existing investors, leaving them with a smaller piece of the pie, it does mean they now own part of a more financially secure business - which may be worth it in the long run.

easyJet has had to make other changes to adapt to the new circumstances too, especially the forecast reduction in demand. The group has cut the size of its workforce by 30% and trimmed costs elsewhere. A leaner group should be able to recover more effectively, especially if it's smaller size is better suited to a smaller market for the next few years.

easyJet CEO Johan Lundgren has said the industry faced a "precarious future" and one in which government help would be essential. A vaccine may make bailout discussions a moot point, but if government support is required it will be painful for investors

Overall there are some signs of positivity at easyJet, but it would be a mistake to assume the challenges are over. The group's doing a lot of the right things to protect the long-term interests of the business, but the easyJet we'll be looking at once its self-help measures are complete is going to be a very different beast. While brave investors could be rewarded for staying put, they'll need the courage to stay put through a rocky ride.

Easyjet key facts

  • Current price/book ratio: 1.0
  • 10 year average price/book ratio: 2.0
  • Prospective yield: 0.4%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Full Year Trading Update

Capacity fell 47.5% to 55.1m seats. Revenue per available seat fell 10.6% to £54.35, reflecting growth in the first half and a fall in the second. Headline costs per seat (excluding fuel) rose 29.3%, despite falling in absolute terms from £4.5bn to £3.1bn. Fuel costs fell 49.1% to £721m.

easyJet incurred £438m in exceptional costs before tax. The largest component of which was a £311m fair value adjustment for ineffective fuel hedges, followed by a £123m restructuring charge - mainly redundancy costs.

Net debt rose from £326m at the start of the year to £1.1bn at the end. This reflected an operating cash outflow of £762m. easyJet also raised £2.4bn in additional debt and equity.

Find out more about easyJet shares including how to invest

A Non-Executive Director of Hargreaves Lansdown plc is also a Non-Executive Director of easyJet.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.