Shares are now rallying from the mixed update
easyJet’s share price suffers early morning descent after results
- easyJet expects full year profit to be in top half of analyst range but shares react negatively to cautious 2019 outlook
- Airline benefitted from Ryanair cancellations and competitor bankruptcies this year
- We recommend easyJet as a ‘buy’ for medium risk investors
There’s been a lot of company news from the travel industry this week with Thomas Cook firstly reporting a profit warning and TUI shrugging that off yesterday stating that demand is high and reiterating it’s guidance of a 10% rise in full-year earnings. Investors with an eye on the sector should therefore acknowledge that a trading update from easyJet this morning is relatively optimistic.
The budget airline today highlighted that it expects full year profit of between £570-£580m which is in the top half of analyst range. EasyJet commented on how it had benefitted from one off events in 2018, specifically the bankruptcies of Monarch and Air Berlin, as well as Ryanair cancellations. However, the market appears to be focussing on a rather cautious outlook for the first quarter of 2019, explaining why there’s been an opening fall in the share price of around 2%, but the shares are rallying.
Nevertheless, investors should appreciate that the group expects to deliver a strong fourth quarter despite some disruption across parts of Europe, as well as higher costs caused by third party industrial action and severe weather issues during the year. Passenger numbers are forecast to have increased by 5.4% with a load factor of around 93.6%. Moreover, the company is predicting capacity to rise to around 105m seats, the fuel bill to grow by a range of £55m to £105m and that its Berlin hub will break even for next year.
The share price has fallen by around 25% since June following a strong run and investors will be hoping that this update provides a support level. Yes, investors need to keep an eye on the oil price and of course the impact of Brexit, but we are encouraged by a solid trading performance and that there are a number of opportunities ahead. As a result, we continue to recommend easyJet as a ‘buy’ for medium risk investors.
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