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easyJet - dividends reinstated

easyJet has had a record fourth quarter and expects to report full year pre-tax profit of £440 - £460m.

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easyJet has had a record fourth quarter and expects to report full year pre-tax profit of £440 - £460m. Revenue from optional extras rose 14% in the final quarter, while passenger growth was up 8%. This fed into overall revenue of £3.1bn, up from £2.5bn at the same time last year. Load factor - a measure of how full planes are - was 92%.

The group's entered into conditional arrangements with Airbus to secure the delivery of a further 157 aircraft between FY29 - FY34 as well as 100 purchase rights, subject to shareholder approval.

The financial performance means the dividend is being reinstated, with a payout ratio of 10% of headline profit after tax this financial year, increasing to 20% the following year.

The shares fell 1.3% following the announcement.

View the latest easyjet share price and how to deal

Our view

easyJet's post-pandemic recovery can be labelled mission complete. Profit engines are firing and bookings keep on coming.

That's given the group the confidence to re-enter the world of dividend payments. The payout ratio is much lower than pre-pandemic levels, but this could pave the way for shareholder returns to grow over time. Remember no share holders returned are guaranteed and yields are variable and not a reliable indicator of future income.

It's not just that travel is back on the agenda for easyJet's customers. That's a rising tide that lifts all ships. There are some easyJet specific elements to the success story. The group is particularly successful at selling extras to existing passengers. So-called ancillary revenues are things like extra baggage, legroom and food. This is a growing, and highly lucrative area, and the growth has been impressive.

easyJet's ability to sell these add-ons and encourage strong demand stems from its route strategy. It focuses on profitable Western European routes within major airports. It's also invested heavily in bolstering its presence at these major airports and improving its routes. It's an approach that sets easyJet apart from other low-cost carriers - who trim costs by flying in and out of smaller, less convenient airports. Plans to buy close to another 160 aircraft in the coming decade is also a way the group's trying to future proof its best-in-class route strategy. This more aggressive approach also increases risk if demand was to take a sharp knock backwards too, we'd also like more information on how it's being funded. But overall we're supportive of the move to put the order in now,

It's also worth considering that the cost-of-living crisis is still very much alive and kicking. While easyJet doesn't seem to be suffering from this at present, if the economic backdrop is worse than expected this year, then we could see a reduction in the number of bookings.

Wider industry strikes have the potential to cause havoc across the system too. The broader implications of sweeping cancellations or changes could dent profit momentum in a big way if issues in this arena rear their head again.

The final thing to consider is escalating geopolitical tension. This hasn't dented investor sentiment, but as with any situation like this, that can change at short notice.

We think easyJet is well-placed within its sector, and comes with growth opportunities. There are some risks, especially in the short-term, so be prepared for ups and downs.

An independent Non-Executive director of Hargreaves Lansdown plc is also an Independent Non-Executive Director of easyJet plc.

easyJet key facts

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. 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 disclosure for more information.

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Article history
Published: 12th October 2023