Stock of the Week: easyJet

The budget airline has just asked investors for more than £1 billion. Can it fend off its rivals and take advantage of the fitful recovery in travel?

James Gard 17 September, 2021 | 11:04AM
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Stock of the week post-it

Our latest stock of the week poll features a roster of well-known airline firms and our followers have gone for easyJet (EZJ) by a wide margin. Like all listed airlines, easyJet has suffered severe disruption during the pandemic amid travel restrictions. And while the vaccine rollout has allowed the industry to recover, it’s still not fully out of the turbulence caused by coronavirus (we last wrote about easyJet in February this year). If survival was the watchword for airlines in 2020, the emphasis for 2021 and beyond is to get passenger levels close to pre-pandemic levels. The flight path of recovery has not been even among budget airlines. EasyJet, which is perceived to be one of the laggards, has recently rejected a takeover proposal, which was linked to Hungarian challenger Wizz Air (WIZZ), Morningstar’s preferred European airline.

EasyJet’s recent rights issue, where it is asking shareholders for £1.2 billion, caught investors on the back foot – especially as the announcement was twinned with that of the rejected bid approach. (For more on how companies raise money, see this guide). Shares fell on the news, which is common when rights issues are announced because they usually involve more, and cheaper shares, being available on the stock market. “The rights issue comes as somewhat of a surprise to us given the group had £2.90 billion of liquidity available at the end of June 2021, which suggests cash generation was weaker than expected over summer,” says Morningstar analyst Joachim Kotze, who estimates that the airline has raised £5.50 billion already since the crisis started.

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James Gard  is content editor for Morningstar.co.uk