Given I have undertaken a return trip to Dubai in three days (technically between Tuesday and Thursday - don't ask!) you would have thought I would have had enough thinking or talking about the airline sector. But musing about numbers from easyJet (EZJ) from Tuesday is no chore…
It was only last month when I last talked about the stock, noting that 'easyJet shares are still in play to gain further altitude with my target remaining a low teens share price (say 1300p) before I have a think about the stock again'. That was after the pre-close trading update. On Tuesday we had the publication of the full year numbers. Total revenue increased by 8.3% to just under £6.4 billion, aided by a 10% increase in capacity, an increased contribution from the relatively newly acquired Tegel base in Berlin and self-help initiatives including strikes by peers BA (IAG) and Ryanair (RYA). Yes, the load factor decreased by 1.4 percentage points to 91.5% but at least passenger revenue per head has started to grow again in the latter half of the financial year just finished. And note how key inputs such as energy prices have started to go down.
However the earlier in the year difficult trading, the operationally geared nature of the airline business and a 10% rise in capacity did mean that not only will expected capacity growth for FY20 be at the lower end of historic guidance of between 3% and 8% per year but for the year to September just finished, basic headline earnings per share decreased to 88.7p (2018 – 118.3p). It also meant that, using the company's 50% dividend payout formula, the proposed dividend fell to 43.9p (2018 – 58.6p). At today's share price this is barely a 3% dividend yield.
But at a certain level this shows how far the share has risen up since my earlier assertions of a 5%+ dividend hope. I applaud all its hopes to be the first major airline to operate net-zero carbon flights by offsetting carbon emissions from fuel used on flights and - post the collapse of Thomas Cook - it is relaunching its package holiday bookings with a focus on flexibility in flights and tailored holidays, but the reality is the key overhang remains any Brexit related disruption or a fall in the average consumer's propensity to take cheap flights. On the Brexit question, correctly the fear factor is much reduced and, with the company back to a mid-teens earnings multiple, it is time for me to go to a more neutral position too, even if the balance sheet remains in good order. So take profits in easyJet and spend them if you wish on a flight. As for me, my feet are staying firmly planted on the ground for at least the rest of the year.
Filed under: easyJet, Quindell fraud, Malcolm Stacey, Corero, ShareProphets podcast, Chris Bailey
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