So another week of Brexit-related excitement awaits. I have almost given up trying to predict the next twists and turns but there is always a practical impact and we have seen this from easyJet (EZJ). An update starts strongly enough with a reiteration of its first half trading, which is clearly no bad thing (even if due to normal seasonal issues all this actually means is that there is 'an expected first half headline loss before tax of around £275 million'). Net net though it is good to read that 'easyJet continues to strengthen its position in key markets as well as completing the annualisation of its flying at Berlin Tegel airport'. However...read down a little bit further in the statement and it all goes a bit pear shaped.
Whilst the company notes that there has been good progress with Brexit and especially various legal issues around hitting a 50% continuing EU share ownership level (49.92% currently), it also notes 'macroeconomic uncertainty and many unanswered questions surrounding Brexit are together driving weaker customer demand in the market'. Oh dear.
At a certain level I am not that surprised given I have seen directly material implied pressure from organisations who expressed huge caution about anyone undertaking travel plans around this period or into the near future. We all know that the airline sector is one which can be very operationally geared due to the economics of buying / leasing expensive planes. The better news for easyJet however is that the company has a strong balance sheet at face value. Additionally it is not as if business if falling off a cliff, hence the comment near the bottom of the update which notes that 'H2 revenue per seat at constant currency is expected to be slightly up, which reflects weakening Q3 underlying demand and an expected year on year uptick in Q4 driven by a programme of yield initiatives (which helps cost control) and an assumption of a more certain Brexit outlook'.
Of course there is an assumption of that 'more certain Brexit outlook' by the end of the year. Clearly this is a general huge focus for the markets as well as the stock per se but my view would be a huge amount is already factored in. Note how back in the original dog days of Brexit fear back in late 2016 the share found support at/around the 10 quid a share level – a level not dis-similar to where we are now. My view now would be to embrace such uncertainty, nod towards both the sensible easyJet balance sheet positioning and (in my experience) good customer experience. Unless you believe Project Fear grips the country completely, I would pull back on the share purchasing throttle and buy easyJet here.
Filed under: easyJet, Chris Ronnie, Management Resource Solutions, Bonmarche, Versarien, Pantheon Resources
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