The reality about the investment world is that thinking about realities for the next six to eighteen months matter a lot more than many people (even brokers and investment analysts) think. And that brings us to easyJet (EZJ) just publishing its nine months numbers. I know it makes sense for most companies to use the end of December as their full year point. Meanwhile some old-school corporations use the end of the UK tax year at the end of March/start of April. However many travel companies use the end of September, especially if they have a big summer holiday focus, often maxing out their revenue flow in the months leading up to that time. Nevertheless, you would expect some interesting comments - and guidance - at the nine month numbers published in July. And this brings us to easyJet.
Of course the last year has been very tricky for all travel companies. Nevertheless it is getting better. EasyJet’s numbers for its third quarter showed just over 24,600 flights, compared to just 709 flights last year. And whilst load factors were worse and even just having more flights materially boosts your cost base (especially as it will mean lots of freebie revenue assistance flows from the government stops), it was better to see losses fall. And then with lots of chat in the numbers about ‘strong liquidity position of £2.9 billion, no change vs H1 2021’, the immediate thought is ‘so how much is full year profitability in 2020-21 and 2021-22 going to be?’...but on that factor it is absolutely silent.
Of course, there are uncertainties out there. It may have just been ‘freedom day’ here in the UK, but patently there are still plenty of concerns out there. Certainly, it was striking to hear a discussion by the easyJet CEO that 75% of its business is coming from mainland Europe at the moment, compared to a norm of a 50/50 split with the UK. So whilst it is ‘going in the right direction’ and there is ‘no major impact’ from the new ranking for anyone travelling from France to the UK, it still feels unable to give a full year to September 2021 (let alone September 2022) profitability estimate. So whilst my purchase of easyJet shares over a year ago has worked out really well, the stock has been a bit volatile in recent months. Such is the nature of markets - in the holiday space especially - at the moment though, around issues coloured green, amber and red among others. And even though we can talk about the ‘strong liquidity’ and sub £4 billion market cap, it is tricky to even take a next six to eighteen month view on this one.
If you think profitability for the year to the end of September 2022 is going to be close to the historic profitability achieved during the year to the end of September 2019 then you would expect a twelve quid plus share price in the next year. To get closer to there though you need some further moves away from Covid-19 impacted life. Certainly in more normal times you would be excited about a business that describes itself as also being the ‘most sustainable airline in Europe’ and offering higher market shares in its holidays business. However to get closer to that it needs to tell us its best estimates of profitability for the next five quarters. In short: more in three months time then. For myself, I am not going to book my profits and run as I think making some progress will allow them to hit a ten quid share price again by the end of this year and twelve quid plus by the time the year to September 2022 numbers are out. As always, better to look a little bit forward than now.
Filed under: easyJet, Predator Oil & Gas, Tricorn, Ariana Resources, Saga, Next, Mulberry
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