3rd Oct 2014 08:39
LONDON (Alliance News) - Jefferies is keeping a Buy rating on easyJet because it expects the airline's shares to keep rising over 12 months, but it says the investment case is something of a conundrum and it still prefers Ryanair.
EasyJet raised its profit guidance for the financial year that just ended Friday, citing passenger steals from strike hit Air France and favourable fuel prices. It raised its revenue per seat guidance for the second half of that year to about 2% growth, up from a July forecast of 1%, and said costs per seat are expected to rise 0.7% on the year, compared with previous guidance of a 0.5% increase.
Jefferies said that revenue per seat growth "is softer than (some) expected, but cost progress is better".
"Beyond our long EZJ/short AF-KLM idea into this update, we do not have particularly strong conviction ourselves at the moment," it write in a note to clients.
The investment bank thinks easyJet's 15% capacity expansion at Gatwick after it bought takeoff and landing slots from Flybe is short-term pain for long-term gain, and it believes "there is significant opportunity for improved revenue performance as the slot portfolio is optimised next summer".
"We are more cautious into winter but fuel help, and a higher profit base, leaves us happy with our above consensus FY15 estimates for now," it added.
Jefferies is forecasting 5.1% revenue growth for fiscal 2015, the current financial year, based on revenue per seat growth of 1.8% at constant exchange rates. It is also forecasting easyJet's fiscal 2015 pretax profit at GBP639 million, above the current consensus forecast of GBP628 million, as modest cost inflation and an easier fuel price offset the more modest revenue per seat growth prediction.
Jefferies also thinks a GBP100 million special dividend is possible when easyJet put out its full fiscal 2014 results in November, but thinks that a special dividend for the current financial year is more likely.
Jefferies is keeping a Buy rating on easyJet with a 1,500.00 pence price target. It has Ryanair at Buy also, with a EUR8.00 price target.
EasyJet shares were up 6.4% at 1,459.10 pence Friday morning, the best-performing stock on the FTSE 100. Ryanair shares were up 0.8% at EUR7.45.
By Steve McGrath; [email protected]; @stevemcgrath1
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
RYA.LeasyJet