Easyjet PLC

Luton, the United Kingdom-based EasyJet PLC (LON: EZJ) is a low-cost European point-to-point airline company. The company has four geographic segments, which are differentiated according to the origin country. The segments include the United Kingdom, Southern Europe, Northern Europe and Other.

Dividend
The company’s dividend policy is to pay shareholders 50 per cent of headline earnings after tax, reflecting the Board’s confidence in the long-term prospects of the business. The company proposed a dividend per share of 43.9 pence, a decrease from the previous year period (FY18: 58.6 pence). The ex-dividend date for the dividend is 27^th February 2020, with a payment date of 20^th March 2020 and a record date on 28^th February 2020.

Financial Highlights (for the year ending 30 September 2019, £million)

(Source: Annual Report, Company Website)

For the year ending 30 September 2019, the passenger numbers surged by 8.6% to 96.1 million. In FY2019, the capacity rose by 10.3%, driven by an increase in all regions. Load factor declined by 1.4 ppts to 91.5% in FY19. The total revenue for the financial year 2019 surged by 8.3% to £6,385 million, driven by an increase in capacity, while revenue per seat reduced by 1.8% to £60.81 against the previous year period.

Headline basic earnings per share decreased by 25% to 88.7 penceas compared to 118.3 pence in FY18, while basic total EPS decreased to 88.6 pence. On a constant currency basis, the headline cost per seat reduced by 0.8 per cent to £43.11 (excluding fuel). For the financial year 2019, the headline ROCE reduced to 11.4%. On a like?for?like accounting basis, headline ROCE for the financial year declined to 9.9%. From the perspective of industry, the company’s balance sheet is among the best, with a net debt position of £326 million.

Share Price Performance

Daily Chart as at December-05-19, before the market closed (Source: Thomson Reuters)

On 5th December 2019, Easyjet PLC shares were trading at GBX 1,358 at the time of writing before the market close (at 11:10 AM GMT), down by 1.05% against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,375/GBX 840. The company's stock beta stood at 0.59, reflecting the lower volatility as compared to the benchmark index.

Conclusion
From the perspective of the market, the aviation industry has been disturbed by several geopolitical events in the current year, such as extreme weather and terror attacks events. In the short-term and long-term period, these have both consequences for demand and the structure of the industry. Fuel represented 24 per cent of the company’s cost base for the financial year 2019. As per the annual report of the company, the average price of Brent crude oil decreased by 6 per cent to $66 from $70. For the airline industry, environmental factors impact the operating parameters and passenger demand. In Europe, the Air Traffic Control environment has continued to worsen.

Shortly after the end of the fiscal year, the company acquired Thomas Cook's slots at Bristol Airport and Gatwick Airport for a total consideration of 36 million pounds.In the year ending 30 September 2020, the company’s expected capacity growth will be at the lower end of the historic guidance in the range of 3%-8% per year.

On a constant currency basis, the headline airline revenue per seat is expected to be up by low to mid-single digits in the first half of 2020, while headline airline cost per seat, excluding fuel, is expected to be up by low single digits in the financial year 2020.
The capital expenditure is anticipated to be approximately £1,350 million in FY20.Brexit risk signifies the potential impact of the United Kingdom’s decision to leave the European Union on the company’s operations and financial position. The company is facing emerging headwinds and cost pressures. Currently, the stock is trading near the 52-week high, suggesting that the upside potential might be limited. The company might be exposed to foreign exchange rate movements, mainly Sterling against the Euro and the US dollar.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 1,373.5 (as on 4^th December 2019), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures have been taken from Thomson Reuters.

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