EasyJet Shares Rise Despite First-Half Loss

Easyjet shares shrug off first-half loss while Thomas Cook is punished after profit warning

James Gard 17 May, 2019 | 10:48AM
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Shares in FTSE 100 budget airline easyJet (EZJ) rose 5% on Friday morning despite reporting a loss for the first half of its financial year.

Group revenue is up more than 7% but easyJet made a pre-tax loss of £272 million and forward bookings are down 3% on this time last year.

Chief executive Johan Lundgren said this morning that the loss was expected as airlines always struggle to make profits in the winter months. He added that the timing of Easter this year also affected bookings; last year Easter fell in the first half of the company’s financial year (six months to the end of March), but this year the long weekend will fall in the company’s second half.

The airline blamed higher fuel costs after the price of crude oil mounted a strong rebound in the first few months of 2019. Brewin Dolphin’s senior investment manager, John Moore, referenced yesterday’s profit warning from Thomas Cook (TCG) and slump in the share price for weaker sentiment in the wider travel sector. Saying that, easyJet remains a “a really well-placed and soundly financed operator”, although Brexit will “no doubt land with a bump at some point”.

Thomas Cook shares plunged nearly 15% yesterday and a further 30% on Friday morning as investors react to the profit warning.

Germany’s Lufthansa (LHA), which is a direct competitor of easyJet in the short-haul market in Europe, issued a profit warning in April which it blamed on higher fuel costs.

Graham Spooner, investment research analyst at The Share Centre, expects there to be a renewed focus on costs and customer loyalty initiatives in the second half but is upbeat about the company’s prospects. He cites the airlines’ strong balance sheet, attractive dividend – the shares yield over 4% - and opportunities in Germany as reasons for his buy recommendation.

He describes today’s share price as a relief rally after a 40% fall in recent months: “It’s been a bumpy ride for the company of late with the share price reflecting upon recent profit warning from Lufthansa, drones impacting BA at Gatwick, rising fuel costs and the uncertainty of Brexit “

EasyJet’s shares rebounded strongly after the shock of the Brexit vote, pushing up to more than £17 in the summer of 2018. But they have struggled since, particularly after the Lufthansa profit warning and the shares are now trading just above £10.

The family of easyJet founder Stelios Haji-Ioannou hold 33% in the airline, while fund manager Invesco holds a 10% stake, according to Morningstar data.

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James Gard  is content editor for Morningstar.co.uk