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| easyJet plc operates as an airline carrier primarily in Europe. It also leases aircrafts, as well as operates tours; and provides financing services. As of September 31, 2021, the company operated 927 routes with approximately 308 aircrafts in 34 countries; and 153 airports. It sells seats through its own website www.easyjet.com and its easyJet Worldwide' platform, its mobile application, global distribution systems, corporate online booking tools, content aggregators, and tour operator. easyJet plc was founded in 1995 and is headquartered in Luton, the United Kingdom. | | easyJet plc operates as an airline carrier primarily in Europe. It also leases aircrafts, as well as operates tours; and provides financing services. As of September 31, 2021, the company operated 927 routes with approximately 308 aircrafts in 34 countries; and 153 airports. It sells seats through its own website www.easyjet.com and its easyJet Worldwide' platform, its mobile application, global distribution systems, corporate online booking tools, content aggregators, and tour operator. easyJet plc was founded in 1995 and is headquartered in Luton, the United Kingdom. |
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| == Operations == | | == Operations == |
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| Stelios then went to on to set up EasyJet in 1995, employing 70 people. Stelios also established the easyJet headquarters known as easyLand built at Luton airport who offered Stelios a 15,000 square feet building to help the new company. Initially easyJet flew just two routes from Luton to Edinburgh and to Glasgow, supported by the advertising campaign "Making flying as affordable as a pair of jeans - £29 one way".<ref name=":1">https://uk.marketscreener.com/quote/stock/EASYJET-PLC-10093880/company/</ref> | | Stelios then went to on to set up EasyJet in 1995, employing 70 people. Stelios also established the easyJet headquarters known as easyLand built at Luton airport who offered Stelios a 15,000 square feet building to help the new company. Initially easyJet flew just two routes from Luton to Edinburgh and to Glasgow, supported by the advertising campaign "Making flying as affordable as a pair of jeans - £29 one way".<ref name=":1">https://uk.marketscreener.com/quote/stock/EASYJET-PLC-10093880/company/</ref> |
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| The first international flight came in April 1996 when easyJet started the route to Amsterdam, competing with British Airways and KLM. These two competitors had different responses to the emergent company with BA sticking to their strategy whereas KLM allegedly responded with a "predatory pricing strategy" which led to the EU investigating.<ref name=":0" /> | | The first international flight came in April 1996 when easyJet satrted the route to Amsterdam, competing with British Airways and KLM. These two competitors had different responses to the emergent company with BA sticking to their strategy whereas KLM allegedly responded with a "predatory pricing strategy" which led to the EU investigating.<ref name=":0" /> |
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| === What's the mission of the company? === | | === What's the mission of the company? === |
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| # '''Building Europe's best network:''' easyJet's ambition is to build the best network in Europe. To do this, they will continue to lead in their core markets, building scale in Europe’s largest and most attractive travel markets. This will offer customers choice in terms of destination and schedule and will ensure highly efficient operations. In many cases, easyJet’s core markets are slot-constrained and we will continue to grow in these markets by building the slot portfolio as opportunities arise and through up-gauging as the average seats per aircraft increases in coming years. In addition easyJet will continue to build out their destination bases in top leisure locations. <ref name=":2">https://corporate.easyjet.com/~/media/Files/E/Easyjet/pdf/investors/results-centre/2022/annual-report-2022.pdf</ref> | | # '''Building Europe's best network:''' easyJet's ambition is to build the best network in Europe. To do this, they will continue to lead in their core markets, building scale in Europe’s largest and most attractive travel markets. This will offer customers choice in terms of destination and schedule and will ensure highly efficient operations. In many cases, easyJet’s core markets are slot-constrained and we will continue to grow in these markets by building the slot portfolio as opportunities arise and through up-gauging as the average seats per aircraft increases in coming years. In addition easyJet will continue to build out their destination bases in top leisure locations. <ref name=":2">https://corporate.easyjet.com/~/media/Files/E/Easyjet/pdf/investors/results-centre/2022/annual-report-2022.pdf</ref> |
| # '''Transforming revenue:''' easyJet has delivered exceptional revenue performance, especially in the ancillary revenue area. Continuing to develop and build in this area is a key priority in delivering the strategy, ensuring that they are able to maximise the revenue potential of the market. To deliver on this priority easyJet will continue to invest in its strong revenue management capability, ensuring that its market-leading position is maintained by developing new industry-leading capabilities which creatively leverage new sources of data and optimise ticket and ancillary revenue together. Additionally, they will continue to invest in diversifying our sources of revenue with an ongoing focus on easyJet holidays.<ref name=":2" /> | | # '''Transforming revenue:''' easyJet has delivered exceptional revenue performance, especially in the ancillary revenue area. Continuing to develop and build in this area is a key priority in delivering the strategy, ensuring that they are able to maximise the revenue potential of the market. To deliver on this priority easyJet will continue to invest in its strong revenue management capability, ensuring that its market-leading position is maintained by developing new industry-leading capabilities which creatively leverage new sources of data and optimise ticket and ancillary revenue together. Additionally, they will continue to invest in diversifying our sources of revenue with an ongoing focus on easyJet holidays.<ref name=":2" /> |
| # '''Delivering ease and reliability:''' To deliver ease and reliability, easyjet will continue to build on their areas of strength, in particular the digital booking and on-the-day experience and exceptional onboard service. This will be supported by investments in other key areas of the customer journey, in particular the airport experience, and continuing to improve On-Time Performance and reduce cancellation rates. They gauge this mission through KPIs such as Customer satisfaction (%) and On-Time Performance (%). Sustainability continues to be a priority for easyJet and its customers. The net zero roadmap recently launched demonstrates their commitment to leading in an area which is likely to be a key purchase driver in the future.<ref name=":2" /> Their KPI to measure sustainability is CO2 emissions per passenger kilometre (g). | | # '''Delivering ease and reliability:''' To deliver ease and reliability, easyjet will continue to build on their areas of strength, in particular the digital booking and on-the-day experience and exceptional onboard service. This will be supported by investments in other key areas of the customer journey, in particular the airport experience, and continuing to improve On-Time Performance and reduce cancellation rates. Sustainability continues to be a priority for easyJet and its customers. The net zero roadmap recently launched demonstrates their commitment to leading in an area which is likely to be a key purchase driver in the future.<ref name=":2" /> |
| # '''Driving a low-cost model:''' a highly efficient point-to-point network to deliver simplicity in operations and scale within airports. Providing disaggregated products and relevant bundles of products, allowing customers to pay for what they value. Ensuring they have a fleet with exceptional fuel efficiency and low maintenance costs. And most importantly, it means always challenging cost, ensuring that where easyJet spends it delivers tangible value to our customers. <ref name=":2" /> | | # '''Driving a low-cost model:''' a highly efficient point-to-point network to deliver simplicity in operations and scale within airports. Providing disaggregated products and relevant bundles of products, allowing customers to pay for what they value. Ensuring they have a fleet with exceptional fuel efficiency and low maintenance costs. And most importantly, it means always challenging cost, ensuring that where easyJet spends it delivers tangible value to our customers. <ref name=":2" /> |
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| === What are the main offerings of the company? === | | === What are the main offerings of the company? === |
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| EasyJet holidays customers will benefit from ultimate flexibility and can choose exactly how many nights they wish to stay thanks to the strength of the easyJet fleet and its flying schedule. EasyJet holidays is directly contracting hotels for the first time, giving holidaymakers the choice of staying at handpicked hotels. The range of high-quality hotels has been carefully selected by experts, with bespoke collections carefully designed to suit every holiday type.<ref>https://www.easyjet.com/en/holidays/media-centre/press-releases/easyjet-launches-new-holiday-business</ref> | | EasyJet holidays customers will benefit from ultimate flexibility and can choose exactly how many nights they wish to stay thanks to the strength of the easyJet fleet and its flying schedule. EasyJet holidays is directly contracting hotels for the first time, giving holidaymakers the choice of staying at handpicked hotels. The range of high-quality hotels has been carefully selected by experts, with bespoke collections carefully designed to suit every holiday type.<ref>https://www.easyjet.com/en/holidays/media-centre/press-releases/easyjet-launches-new-holiday-business</ref> |
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| === Impact of COVID-19 and Recovery Process ===
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| During the COVID-19 pandemic, EasyJet, like many other airlines, faced significant challenges. The company reported a full-year loss of £1.3 billion, marking the first annual loss in its 25-year history. The pandemic led to a sharp decline in air travel demand, and the airline was forced to cut back on its flights. However, the announcement of positive news on COVID-19 vaccines, particularly from Pfizer and BioNTech, had a notable impact on the company's bookings. Sales surged by 50% in a week following the vaccine news.
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| The airline responded to the reduced demand and travel restrictions by cutting around 20% of its planned winter schedule. Despite the challenges, EasyJet's CEO, Johan Lundgren, remained optimistic about the future, citing that the longer travel restrictions were in place, the more pent-up demand was building. The positive outlook was further bolstered by holiday bookings for summer 2021, which were significantly ahead of previous years, albeit driven partly by customers who had rebooked using vouchers from cancelled flights in 2020.
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| Lundgren also acknowledged that short-haul and leisure routes, which formed the core of EasyJet's network, were expected to recover more quickly compared to long-haul and business travel. The airline aimed to open seasonal bases in Málaga and Faro for the upcoming summer season, indicating confidence in the recovery potential.
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| While the company faced financial losses, it took measures to improve its liquidity. EasyJet raised £3.1 billion in cash between April and November 2020 through various means, including the sale and leaseback of aircraft and deferring the delivery of new planes. However, cost-cutting measures also resulted in a significant number of redundancies, affecting up to 4,500 employees.<ref>https://www.theguardian.com/business/2020/nov/17/easyjet-loss-covid-cut-flights-vaccine-bookings</ref>
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| More recently, EasyJet indicated signs of recovery as bookings for peak periods, such as Christmas, the ski season, and other holidays, returned to pre-pandemic levels. The airline dramatically reduced its full-year loss to £178 million, showing a significant improvement from the previous year. EasyJet's CEO, Johan Lundgren, noted strong demand during peak periods and cited a survey indicating that three-quarters of people were interested in traveling next year, despite the cost-of-living crisis.
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| The company also implemented measures to cope with rising costs, including increasing ticket prices as jet fuel and other expenses rose. Despite these increases, half of all tickets sold until the following September were expected to cost less than £50, aligning with EasyJet's reputation for offering value to customers. Destinations in the eastern Mediterranean, such as Turkey, Egypt, and Greece, were particularly popular among travellers.
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| While the airline witnessed strong demand during peak periods, it acknowledged that stimulating demand during quieter times remained a challenge. However, EasyJet expected to fully return to 2019 capacity levels by the summer of 2023, indicating a positive outlook for the recovery.
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| To address staff shortages and avoid travel disruptions, EasyJet began early recruitment for the next summer season and received a remarkable response with 19,000 applications for 2,000 jobs. The company also engaged in conversations with contractors and the government to ensure labour availability for the aviation sector.
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| In summary, EasyJet faced substantial losses due to the COVID-19 pandemic, but the news of effective vaccines resulted in a surge in bookings. The airline implemented various measures to manage its finances, including raising cash and reducing costs. With bookings for peak periods returning to pre-pandemic levels and an optimistic outlook for the next summer season, EasyJet appears to be on a path of recovery, although challenges related to stimulating demand during quieter times and managing rising costs persist.<ref>https://www.theguardian.com/business/2022/nov/29/easyjet-bookings-covid-losses-tickets</ref>
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| '''Sustainability'''
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| Aviation accounts for 2.5% of global CO2 emissions according to a report by 'Our World In Data' (2020). Planes emit CO2 from burning fuels. On top of CO2, aircraft engines emit other gases – nitrous oxides (NOx), sulfur dioxide (SO2) and water (H2O) – and particulate matter (soot). When emitted at high altitudes, these emissions affect atmospheric physical and chemical properties (source-Transport and Environment). If looked at distance/consumption, the most fuel is consumed during take-off and climbing. Also the higher the flight range, the higher the share of fuel consumed while cruising. EasyJet's main focus is on short-haul flights (low range), which might lead to lower fuel consumption while cruising. However, due to frequent takeoffs and landings on short-haul routes, the distance/consumption ratio is affected as these phases significantly contribute to fuel usage. Sustainability in aviation could be achieved through improvements in aircraft and engine efficiency, the use of sustainable aviation fuels, more efficient operations and airspace, the use of robust carbon offsets and investment in innovative carbon removal solutions could address the residual, according to a report by Sustainable Aviation. easyJet plans to achieve sustainability through the combination of six drivers: fleet renewal, operational efficiencies, airspace modernisation, sustainable aviation fuel (SAF), zero carbon emission aircraft and carbon removal technology. easyJet has 168 A320neo family aircraft in its orderbook. This more efficient Airbus NEO aircraft will reduce fuel burn, carbon emissions and related operating costs. They will also use Sustainable Aviation Fuel (SAF) in line with their net zero roadmap and have signed a long-term agreement with their main fuel supplier: Q8Aviation for the next 5 years. Currently SAFs are known to be more expensive than traditional jet fuel, so it carries the burden of affecting operating profits. Nonetheless these sustainability initiatives carries the potential of becoming key differentiator in the long term.
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| == Market == | | == Market == |
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| === Total Addressable Market === | | === Total Addressable Market === |
| Total Addressable Market: Here, the total addressable market (TAM) is defined as the global airline market, and based on a number of assumptions, it is estimated that the size of the market, in terms of revenue, is $841.5B. | | Total Addressable Market: Here, the total addressable market (TAM) is defined as the global aviation market, and based on a number of assumptions, it is estimated that the size of the market, in terms of revenue, is $XXX |
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| === Serviceable Available Market === | | === Serviceable Available Market === |
| Serviceable Available Market: Here, the serviceable available market (SAM) is defined as the global low-cost airline market , and based on a number of assumptions, it is estimated that the size of the market, in terms of revenue, is $160B. | | Serviceable Available Market: Here, the serviceable available market (SAM) is defined as the global XXX , and based on a number of assumptions, it is estimated that the size of the market, in terms of revenue, is $XXX |
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| === Serviceable Obtainable Market === | | === Serviceable Obtainable Market === |
| Serviceable Obtainable Market: Here, the serviceable obtainable market (SOM) is defined as the UK airline market, and based on a number of assumptions, it is estimated that the size of the market, in terms of revenue, is $15.2B. | | Serviceable Obtainable Market: Here, the serviceable obtainable market (SOM) is defined as the XXX, and based on a number of assumptions, it is estimated that the size of the market, in terms of revenue, is $XXX |
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| == Competition ==
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| As a company with a focus on its core, low-cost airline business, EasyJet shares market competition with notable players in the airline industry operating both in Europe and globally. Competition extended across many services including ancillary services, vacation packages, loyalty programmes cargo services and business travel. According to a Statista report, based on the number of passengers transported, Ryanair Group, easyJet and Lufthansa Group were the top three European airlines in 2020.
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| '''Ryanair:''' Built on a low-cost model and an extensive route network across Europe and North Africa, Ryanair is known for its cost cutting measures, allowing them to compete on discounted ticket prices. The company reported a revenue of €1.85bn in the first quarter of 2023 and a profit of over €1.4bn over the total FY23, attributed significantly to stronger demand in travel and the companies fuel hedging operations.
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| '''Wizz Air:''' Wizz Air is rapidly expanding into the budget flint market across Europe, competing directly with EasyJet on its short haul flights. The company has expanded significantly in recent years and with its relatively young fleet contributing significantly to reducing operational costs, Wizz Air has established a strong presence in Europe. The company reported a revenue of just €808.8m in the first quarter of 2023.
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| '''Air France-KLM Group:''' Air France-KLM is a global brand with a presence in every continent. Its robust network of both short and long haul flights connecting major global cities allows them to compete in various markets of the aviation industry. The company reported a revenue of €6.33bn in the first quarter of 2023.
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| '''Lufthansa Group:''' While focusing on a more premium service, Lufthansa and EasyJet compete for market share in many overlapping routes throughout Europe. The company has an extensive network of routes with focus on both long and short haul flights. Lufthansa reported a revenue of
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| €7.02bn in the first quarter of 2023, just under its expected value.
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| EasyJet clearly operates in a very competitive landscape. Its closest competitors on market share and services appear to be Ryanair, with its aggressive cost cutting measures and similar route networks, and Whizz Air, whose rapid expansion into Europe compete directly with EasyJet destinations and ticket prices. Competition also comes from travel agencies and booking platforms such as Skyscanner which offer services similar to that of EasyJet Holidays.
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| == Team == | | == Team == |
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| == Financials == | | == Financials == |
| '''Half year performance''' | | '''Half year peformance''' |
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| The 6-month half-year update ending 31 march 2023 indicated a good positive trajectory. The strong growth in revenue can be primarily contributed to the easing of the travel restrictions put in place during the covid-19 pandemic leading to an impressive 80% growth in revenue compared to the previous year. | | The 6-month half-year update ending 31 march 2023 indicated a good positive trajectory. The strong growth in revenue can be primarily contributed to the easing of the travel restrictions put in place during the covid-19 pandemic leading to an impressive 80% growth in revenue compared to the previous year. |
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| Finally net profit before tax continues to be lower than the operating profit. This is driven by the large interest repayments costs of which total to 20 million GBp. | | Finally net profit before tax continues to be lower than the operating profit. This is driven by the large interest repayments costs of which total to 20 million GBp. |
| {| class="wikitable" | | {| class="wikitable" |
| !'''Income statement'''
| | |'''Income statement''' |
| !'''H1 2023'''
| | |'''H1 2023''' |
| !'''H1 2022'''
| | |'''H1 2022''' |
| !'''% change'''
| | |'''% change''' |
| |- | | |- |
| |Revenue (£m) | | |revenue |
| |2690 | | |2690 |
| |1498 | | |1498 |
| |79.57% | | |79.57% |
| |- | | |- |
| |EBITDAR (£m) | | |EBITDAR |
| | -70 | | | -70 |
| | -208 | | | -208 |
| | -66.35% | | | -66.35% |
| |- | | |- |
| |Operating Result (£m) | | |operating profit |
| | -395 | | | -395 |
| | -486 | | | -486 |
| | -18.72% | | | -18.72% |
| |- | | |- |
| |Net income before tax (£m) | | |net profit before tax |
| | -415 | | | -415 |
| | -545 | | | -545 |
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| |} | | |} |
| '''Most Recent Quarter''' | | '''Most Recent Quarter''' |
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| The most recent quarter (ending 31 June 2023) saw EasyJets revenue continue to increase at good pace (35%) compared to Q3 2022. This is encouraging news and indicates that the demand for air travel has not been affected by the weak economy. Additionally, Europe being hit by heatwaves had also not deterred holiday makers. | | The most recent quarter (ending 31 June 2023) saw EasyJets revenue continue to increase at good pace (35%) compared to Q3 2022. This is encouraging news and indicates that the demand for air travel has not been affected by the weak economy. Additionally, Europe being hit by heatwaves had also not deterred holiday makers. |
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| The EBITDAR has also turned positive with a net earnings of 372 million GBp. Much of this change (compared to the 1st half year of 2023) is due to the fact that the crew shortage (of pilots and cabin crew) had calmed down leading to a decrease in the number of cancellations issued. Additionally, the fall of oil prices steadily across the year decreased fuel costs (per distance travelled) further increasign the EBITDAR. | | The EBITDAR has also turned positive with a net earnings of 372 million GBp. Much of this change (compared to the 1st half year of 2023) is due to the fact that the crew shortage (of pilots and cabin crew) had calmed down leading to a decrease in the number of cancellations issued. |
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| Operating profit has also increased dramatically, from a loss of 47 million GBp last year to 201 million GBp this quarter. This should also dramatically balance out the operating loss from the previous half year (ending 31st march 2023). This large increase from the previous year quarter was primarily driven by the surge in revenue (compared to Q3 2022). Compared to the previous half year (H1 2023), the operating profit has soared because of the large reduction in the depreciation expense (from 395 million to 171 million). | | Operating profit has also increased dramatically, from a loss of 47 million GBp last year to 201 million GBp this quarter. This should also dramatically balance out the operating loss from the previous half year (ending 31st march 2023). This large increase from the previous year quarter was primarily driven by the surge in revenue (compared to Q3 2022). Compared to the previous half year (H1 2023), the operating profit has soared because of the large reduction in the depreciation expense (from 395 million to 171 million). |
| These effects led to EasyJet's strong net profit before tax income of 203 million GBp. | | These effects led to EasyJet's strong net profit before tax income of 203 million GBp. |
| {| class="wikitable" | | {| class="wikitable" |
| !'''Income statement'''
| | |'''Income statement''' |
| !'''Q3 2023'''
| | |'''Q3 2023''' |
| !'''Q3 2022'''
| | |'''Q3 2022''' |
| !'''% change'''
| | |'''% change''' |
| |- | | |- |
| |Revenue (£m) | | |revenue |
| |2360 | | |2360 |
| |1755 | | |1755 |
| |34.47% | | |34.47% |
| |- | | |- |
| |EBITDAR (£m) | | |EBITDAR |
| |372 | | |372 |
| |103 | | |103 |
| |261.17% | | |261.17% |
| |- | | |- |
| |Operating Result (£m) | | |operating profit |
| |201 | | |201 |
| | -47 | | | -47 |
| | -527.66% | | | -527.66% |
| |- | | |- |
| |Net Result before tax (£m) | | |net profit before tax |
| |203 | | |203 |
| | -114 | | | -114 |
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| '''Last 5 years<ref name=":3">https://corporate.easyjet.com/investors/results-centre</ref>''' | | '''Last 5 years<ref name=":3">https://corporate.easyjet.com/investors/results-centre</ref>''' |
| {| class="wikitable" | | {| class="wikitable" |
| !'''Income statement'''
| | |'''Income statement''' |
| !'''FY-22'''
| | |'''FY-22''' |
| !'''FY-21'''
| | |'''FY-21''' |
| !'''FY-20'''
| | |'''FY-20''' |
| !'''FY-19'''
| | |'''FY-19''' |
| !'''FY-18'''
| | |'''FY-18''' |
| !'''FY-17'''
| | |'''FY-17''' |
| |- | | |- |
| |Revenue (£m) | | |Revenue |
| |5769 | | |5769 |
| |1458 | | |1458 |
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| |5047 | | |5047 |
| |- | | |- |
| |Gross profit (£m) | | |Gross profit |
| |1365 | | |1367 |
| | -183 | | | -178 |
| |236 | | |237 |
| |1549 | | |1554 |
| |1436 | | |1598 |
| |1116 | | |1220 |
| |- | | |- |
| |Gross margin (£m) | | |Gross margin |
| |23.70% | | |23.70% |
| | -12.21% | | | -12.21% |
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| |24.17% | | |24.17% |
| |- | | |- |
| |EBITDAR
| | |Operating Result |
| |539
| | | -27 |
| | -425
| | | -910 |
| | -358
| | | -899 |
| |970
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| |836
| | |460 |
| |709
| | |404 |
| |-
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| |Operating Result (£m) | |
| | -9 | |
| | -1006 | |
| | -747 | |
| | 466 | |
| |589 | |
| |466 | |
| |- | | |- |
| |Net Profit (£m) | | |Net Profit |
| | -169 | | | -169 |
| | -858 | | | -858 |
| | -1079 | | | -1079 |
| |349 | | |349 |
| |358 | | |445 |
| |305 | | |385 |
| |} | | |} |
| {| class="wikitable" | | {| class="wikitable" |
| !'''Balance sheet'''
| | |'''Balance sheet''' |
| !'''FY-22'''
| | |'''FY-22''' |
| !'''FY-21'''
| | |'''FY-21''' |
| !'''FY-20'''
| | |'''FY-20''' |
| !'''FY-19'''
| | |'''FY-19''' |
| !'''FY-18'''
| | |'''FY-18''' |
| !'''FY-17'''
| | |'''FY-17''' |
| |- | | |- |
| |Total asset (£m) | | |Total asset |
| |10454 | | |10454 |
| |9773 | | |9773 |
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| |5971 | | |5971 |
| |- | | |- |
| |Total liabilities (£m) | | |Total liabilities |
| | -7921 | | | -7921 |
| | -7134 | | | -7134 |
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| | -3169 | | | -3169 |
| |- | | |- |
| |Net assets (£m) | | |Net assets |
| |2533 | | |2533 |
| |2639 | | |2639 |
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| |} | | |} |
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| In fiscal year (FY) 2022, there was a great improvement in the revenue and gross profit, with revenue being up by 296% from FY-2021, bringing the level of revenue close to that of FY-2019 (pre Covid-19 pandemic) at around 6 billion GBp. This was mainly driven by the removal of travel restrictions and the easing of airline crew strikes leading to a decrease in cancellations and a decrease in customer refunds. This lead to FY-2022 having a positive gross of 1.4 billion GBp again putting the gross profit roughly in line with FY- 2019.
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| However, the same can't be said for the EBITDAR, operating result and net profit in which FY-2022 was much lower than FY-2019 and FY-2018. This was primarily driven by a larger cost of productions (COGS) compared to FY-2018 leading to a net loss of 169 million GBp in FY-2022. However, this is expected to break back into positive profit region as the airline crew strikes end and flight cancellations end.
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| Other challenges include the high interest payments EasyJet may have to make as a result of the 7.9 billion GBp in liabilities the company has compared to FY-2018. Additionally, Russia's invasion of Ukraine has caused airspace restricts across many parts Ukraine and Russia, while this doesn't impact EasyJet's primarily European based routes it will impact flight routes by increasing the fuel costs of routes to non-European destinations as well as increasing the price of oil leading to an increase in kerosene (fuel) prices.<ref>[https://www.itf-oecd.org/war-ukraine-impacts-aviation#:~:text=War-related%20airspace%20closures%20force,aviation%27s%20recovery%20from%20the%20pandemic. https://www.itf-oecd.org/war-ukraine-impacts-aviation#:~:text=War-related%20airspace%20closures%20force,aviation%27s%20recovery%20from%20the%20pandemic.]</ref>
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| '''Financial Forecast''' | | '''Financial Forecast''' |
| {| class="wikitable" | | {| class="wikitable" |
| |'''Income Statement''' | | |'''Income statement''' |
| |'''FY-23''' | | |'''FY-23''' |
| |'''FY-24''' | | |'''FY-24''' |
| Line 427: |
Line 373: |
| |'''FY-26''' | | |'''FY-26''' |
| |'''FY-27''' | | |'''FY-27''' |
| | |'''FY-28''' |
| |- | | |- |
| |Revenue (£m) | | |Revenue |
| |8,192.00 | | |6,057.45 |
| |9,175.00 | | |6,360.32 |
| |9,726.00 | | |6,678.34 |
| |10,212.00 | | |7,012.26 |
| |11,029.00 | | |7,362.87 |
| | |7,731.01 |
| |- | | |- |
| |gross profit (£m) | | |Gross profit |
| |1,949.00 | | |1,514.36 |
| |2,182.00 | | |1,590.08 |
| |2,313.00 | | |1,669.58 |
| |2,429.00 | | |1,753.06 |
| |2,623.00 | | |1,840.72 |
| | |1,932.75 |
| |- | | |- |
| |gross margin (£m) | | |Gross margin |
| |23.79% | | |25.00% |
| |23.78% | | |25.00% |
| |23.78% | | |25.00% |
| |23.79% | | |25.00% |
| |23.78% | | |25.00% |
| | |25.00% |
| |- | | |- |
| |EBITDAR (£m) | | |Operating profit |
| |1,193.00 | | |632.58 |
| |1,336.00 | | |664.21 |
| |1,416.00 | | |697.42 |
| |1,487.00 | | |732.29 |
| |1,606.00 | | |768.90 |
| | |807.35 |
| |- | | |- |
| |Operating profit (£m) | | |Net profit |
| |880.00
| | |474.43 |
| |986.00
| | |498.16 |
| |1,045.00 | | |523.06 |
| |1,097.00
| | |549.22 |
| |1,185.00
| | |576.68 |
| |-
| | |605.51 |
| |Net profit (£m)
| |
| |491.52 | |
| |550.50 | |
| |583.56 | |
| |612.72 | |
| |661.74 | |
| |} | | |} |
| The financial forecast looks good for fiscal years 2023-2028 with most the growth happening between FY-2022 and FY-2023 (at around 42% revenue growth). Furthermore, the half year and Q3 revenue performance seem to mirror the forecast for FY-2023. Most of this high growth is driven by the resolution of problems earlier on in FY-22 such as the covid-19 pandemic travel restrictions, the airline crew strikes and the high fuel prices. We then estimate that the perpetual growth rate is around 6% year on year until FY-2027.
| |
|
| |
| Gross profit is predicted to grow with revenue hence a stable gross margin throughout FY-23 to FY-27 of 23.8%. This assumes that oil prices are stable and along side other unpredictable factors (like the absence of any travel restrictions for any reasons). If oil prices were to decrease at the rate they have for the past year, the gross margin for EasyJet and other airlines may increase<ref>https://oilprice.com</ref>. However, economists predict oil prices to be stable for the remainder of 2023, beyond this time-frame the price of oil will be heavily dictated by the war in Ukraine.
| |
|
| |
| EBITDAR and Operating profit are also predicted to grow with revenue, this assumes that the selling and marketing expenses and depreciation costs respectively stay the same as a proportion of revenue. There are very few foreseeable factors that would affect this proportion.
| |
|
| |
| Net Income also is predicted to grow with revenue, although this is dependant on the tax rates in the UK which may change if a labour government were in power. Additionally, the forecasted increase in net income may indicate that dividends payments may resume.
| |
|
| |
| == Risks ==
| |
|
| |
| * Airlines are vulnerable to fluctuations in fuel prices, which can significantly impact operating costs; easyJet has hedged fuel at a higher spot rate than the current price. If price keeps decreasing, easyJet will have greater losses.
| |
| * Economics conditions, such as the cost of living crisis the UK is currently suffering from, can result in downturns in demand. With both the interest rate (5%) and inflation (8.7%) increasing, demand is likely to be lower this year. According to Deloitte's 'Global State of the Consumer Tracker,' 2022 report, the rising inflation rates posed a potential threat to travel demand in the upcoming period. Nevertheless, the travel industry received a glimmer of hope as people are still putting holidays near the top of our discretionary spending priorities.
| |
| * In the last few years, there has been an increase in competition in the Low cost carrier sector. Companies such as Ryanair and Wizz Air have seen their market shares increase since 2019 and COVID, whereas easyJet’s market share has been relatively stagnant at 7.5%
| |
| * Natural disasters, extreme weather events, or health crises (e.g., pandemics) can disrupt travel plans and reduce demand for air travel, impacting the airline's revenue and profitability.
| |
| * Labour disputes and strikes from disgruntled employees can disrupt operations, leading to increased costs and delays. This can also result in reputational damage, which will affect the future revenue of the company.
| |
| * EasyJet operates in various countries and earns revenue in different currencies. Exchange rate fluctuations can impact the company's financial results when converting foreign earnings back into the reporting currency.
| |
| * EasyJet's customer personal data, or those of its service providers could be subject to cyber-attacks or other security incidents, which in turn could result in data breaches, intellectual property theft, litigation, regulatory investigations, reputational damage and other adverse consequences.
| |
| * The airline industry is heavily regulated and there is a continual need to keep well-informed and adapt (as required) to any legislative or regulatory changes across the jurisdictions in which easyJet operate.
| |
| * If EasyJet is unable to attract, hire and retain key employees and qualified personnel, its ability to compete with others in the low cost sector may be harmed.
| |
|
| |
| == Valuation ==
| |
|
| |
| === What's the expected return of an investment in the company? ===
| |
| The Stockhub users estimate that the expected return of an investment in EasyJet plc over the next five years is '''positive 8.5%'''. This value was arrived at through the use an intrinsic valuation in the form of a discounted cash flow model. A relative valuation through a comparable company analysis was also conducted, although this resulted in a wildly different share price, and so provides a far less reliable estimate for the valuation.
| |
|
| |
|
| Assuming that a suitable return level of five years is 10% per year (based of the S&P 500 returns) and EasyJet achieves its return level of positive 8.5%, then the company can be considered 'undervalued'.
| | * |
| | |
| === What are the assumptions used to estimate the return? ===
| |
| | |
| ==== Key Inputs ====
| |
| {| class="wikitable"
| |
| !Description
| |
| !Value
| |
| !Commentary
| |
| |-
| |
| |Valuation Model
| |
| |Discounted Cash Flow and Comparable Company Analysis
| |
| |Two main approaches can be used to estimate the value of an investment:
| |
| | |
| # One form of intrinsic valuation is the discounted cash flow model where future cash flows are discounted to the present value.
| |
| # Comparing key financial metrics of the company to other similar investment
| |
| | |
| Research has suggested that to estimate the expected return of an investment over a long-term investment horizon, a discounted cash flow model provides an accurate projection. For completeness a comparable company analysis has been conducted, however the accuracy of the analysis is limited due to the fact that the effects of the COVID-19 pandemic may have affected different airlines to varying extents, thus vastly diverging their share price and debt.
| |
| |-
| |
| |Financial Projections
| |
| |Stockhub, CapitalIQ, Yahoo Finance
| |
| |To improve the reliability of financial projections, a mixture of sources was used when projecting key financial metrics such as revenue.
| |
| |-
| |
| |Discount Rate
| |
| |WACC
| |
| |The weighted average cost of capital was used as the discount rate as it expresses the return that both bondholders and shareholders demand to provide the company with capital. The cost of equity and cost of debt have been calculated in the tables provided below using values taken from the company's financial statements, beta for the stock, and expected market returns.
| |
| |}
| |
| | |
| ===Discounted Cash Flow Model===
| |
| {| class="wikitable"
| |
| | colspan="15" |Current Share Price: £4.46
| |
| |-
| |
| !''£ million''
| |
| ! colspan="9" |''Historical''
| |
| ! colspan="5" |''Projected''
| |
| |-
| |
| !
| |
| !2014
| |
| !2015
| |
| !2016
| |
| !2017
| |
| !2018
| |
| !2019
| |
| !2020
| |
| !2021
| |
| !2022
| |
| !2023
| |
| !2024
| |
| !2025
| |
| !2026
| |
| !2027
| |
| |-
| |
| ! colspan="15" |Income Statement
| |
| |-
| |
| |Revenue
| |
| |4527
| |
| |4686
| |
| |4669
| |
| |5047
| |
| |5898
| |
| |6385
| |
| |3009
| |
| |1458
| |
| |5769
| |
| |8192
| |
| |9175
| |
| |9726
| |
| |10212
| |
| |11029
| |
| |-
| |
| |''% growth''
| |
| |
| |
| |4%
| |
| |0%
| |
| |8%
| |
| |17%
| |
| |8%
| |
| | -53%
| |
| | -52%
| |
| |296%
| |
| |42%
| |
| |12%
| |
| |6%
| |
| |5%
| |
| |8%
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Cost Of Goods Sold
| |
| |3480
| |
| |3474
| |
| |3595
| |
| |3931
| |
| |4462
| |
| |4836
| |
| |2773
| |
| |1641
| |
| |4404
| |
| |6243
| |
| |6993
| |
| |7412
| |
| |7783
| |
| |8405
| |
| |-
| |
| |''% of revenue''
| |
| |77%
| |
| |74%
| |
| |77%
| |
| |78%
| |
| |76%
| |
| |76%
| |
| |92%
| |
| |113%
| |
| |76%
| |
| |76%
| |
| |76%
| |
| |76%
| |
| |76%
| |
| |76%
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Gross Profit
| |
| |1047
| |
| |1212
| |
| |1074
| |
| |1116
| |
| |1436
| |
| |1549
| |
| |236
| |
| | -183
| |
| |1365
| |
| |1949
| |
| |2182
| |
| |2313
| |
| |2429
| |
| |2623
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Selling General & Admin Exp.
| |
| |103
| |
| |102
| |
| |107
| |
| |122
| |
| |143
| |
| |157
| |
| |107
| |
| |60
| |
| |173
| |
| |192
| |
| |215
| |
| |228
| |
| |239
| |
| |258
| |
| |-
| |
| |''% of revenue''
| |
| |2%
| |
| |2%
| |
| |2%
| |
| |2%
| |
| |2%
| |
| |2%
| |
| |4%
| |
| |4%
| |
| |3%
| |
| |2%
| |
| |2%
| |
| |2%
| |
| |2%
| |
| |2%
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Depreciation & Amort.
| |
| |106
| |
| |125
| |
| |157
| |
| |181
| |
| |199
| |
| |484
| |
| |485
| |
| |456
| |
| |539
| |
| |313
| |
| |350
| |
| |371
| |
| |390
| |
| |421
| |
| |-
| |
| |''% of revenue''
| |
| |2%
| |
| |3%
| |
| |3%
| |
| |4%
| |
| |3%
| |
| |8%
| |
| |16%
| |
| |31%
| |
| |9%
| |
| |4%
| |
| |4%
| |
| |4%
| |
| |4%
| |
| |4%
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Amort. of Goodwill and Intangibles
| |
| |12
| |
| |13
| |
| |12
| |
| |14
| |
| |15
| |
| |15
| |
| |18
| |
| |24
| |
| |25
| |
| |21
| |
| |24
| |
| |25
| |
| |27
| |
| |29
| |
| |-
| |
| |''% of revenue''
| |
| |0.3%
| |
| |0.3%
| |
| |0.3%
| |
| |0.3%
| |
| |0.3%
| |
| |0.2%
| |
| |0.6%
| |
| |1.6%
| |
| |0.4%
| |
| |0.3%
| |
| |0.3%
| |
| |0.3%
| |
| |0.3%
| |
| |0.3%
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Other Operating Expense/(Income)
| |
| |243
| |
| |275
| |
| |291
| |
| |367
| |
| |490
| |
| |427
| |
| |373
| |
| |283
| |
| |637
| |
| |543
| |
| |608
| |
| |644
| |
| |676
| |
| |730
| |
| |-
| |
| |% of revenue
| |
| |5%
| |
| |6%
| |
| |6%
| |
| |7%
| |
| |8%
| |
| |7%
| |
| |12%
| |
| |19%
| |
| |11%
| |
| |7%
| |
| |7%
| |
| |7%
| |
| |7%
| |
| |7%
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Total Operating Expenses
| |
| |464
| |
| |515
| |
| |567
| |
| |684
| |
| |847
| |
| |1083
| |
| |983
| |
| |823
| |
| |1374
| |
| |1068
| |
| |1197
| |
| |1269
| |
| |1332
| |
| |1438
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Operating Income/ EBIT
| |
| |583
| |
| |697
| |
| |507
| |
| |432
| |
| |589
| |
| |466
| |
| | -747
| |
| | -1006
| |
| | -9
| |
| |880
| |
| |986
| |
| |1045
| |
| |1097
| |
| |1185
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |EBITDA
| |
| |690
| |
| |822
| |
| |664
| |
| |613
| |
| |788
| |
| |703
| |
| | -491
| |
| | -772
| |
| |255
| |
| |1193
| |
| |1336
| |
| |1416
| |
| |1487
| |
| |1606
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Tax Expense
| |
| |131
| |
| |138
| |
| |70
| |
| |80
| |
| |87
| |
| |81
| |
| | -194
| |
| | -178
| |
| | -39
| |
| |157
| |
| |175
| |
| |186
| |
| |195
| |
| |211
| |
| |-
| |
| |''Effective tax rate''
| |
| |22%
| |
| |20%
| |
| |14%
| |
| |19%
| |
| |15%
| |
| |17%
| |
| |26%
| |
| |18%
| |
| |433%
| |
| |18%
| |
| |18%
| |
| |18%
| |
| |18%
| |
| |18%
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |EBIAT
| |
| |452
| |
| |559
| |
| |437
| |
| |352
| |
| |502
| |
| |385
| |
| | -553
| |
| | -828
| |
| |30
| |
| |723
| |
| |810
| |
| |859
| |
| |902
| |
| |974
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| ! colspan="15" |Cashflow
| |
| |-
| |
| |D&A
| |
| |106
| |
| |125
| |
| |157
| |
| |181
| |
| |199
| |
| |484
| |
| |485
| |
| |456
| |
| |539
| |
| |313
| |
| |350
| |
| |371
| |
| |390
| |
| |421
| |
| |-
| |
| |''% of revenue''
| |
| |2%
| |
| |3%
| |
| |3%
| |
| |4%
| |
| |3%
| |
| |8%
| |
| |16%
| |
| |31%
| |
| |9%
| |
| |4%
| |
| |4%
| |
| |4%
| |
| |4%
| |
| |4%
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Capital Expenditure
| |
| | -426
| |
| | -509
| |
| | -549
| |
| | -586
| |
| | -931
| |
| | -954
| |
| | -659
| |
| | -140
| |
| | -501
| |
| | -1015
| |
| | -1137
| |
| | -1205
| |
| | -1266
| |
| | -1367
| |
| |-
| |
| |''% of revenue''
| |
| |9%
| |
| |11%
| |
| |12%
| |
| |12%
| |
| |16%
| |
| |15%
| |
| |22%
| |
| |10%
| |
| |9%
| |
| |12%
| |
| |12%
| |
| |12%
| |
| |12%
| |
| |12%
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |Change in NWC
| |
| |28
| |
| | -193
| |
| |242
| |
| | -252
| |
| | -169
| |
| | -481
| |
| | -462
| |
| |809
| |
| | -146
| |
| | -187
| |
| | -210
| |
| | -222
| |
| | -233
| |
| | -252
| |
| |-
| |
| |% of revenue
| |
| |1%
| |
| | -4%
| |
| |5%
| |
| | -5%
| |
| | -3%
| |
| | -8%
| |
| | -15%
| |
| |55%
| |
| | -3%
| |
| | -2%
| |
| | -2%
| |
| | -2%
| |
| | -2%
| |
| | -2%
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |'''<u>Unlevered FCF</u>'''
| |
| |
| |
| |104
| |
| |368
| |
| | -197
| |
| |199
| |
| | -61
| |
| |396
| |
| | -265
| |
| | -1321
| |
| |'''214'''
| |
| |'''208'''
| |
| |'''233'''
| |
| |'''247'''
| |
| |'''259'''
| |
| |}
| |
| {| class="wikitable"
| |
| !WACC
| |
| !
| |
| !Notes
| |
| |-
| |
| |'''Weights'''
| |
| |
| |
| |
| |
| |-
| |
| |Total Debt
| |
| |3642
| |
| |
| |
| |-
| |
| |Market Cap
| |
| |3410
| |
| |
| |
| |-
| |
| |Total
| |
| |7052
| |
| |
| |
| |-
| |
| |Wd
| |
| |52%
| |
| |Weight of debt calculated as the total debt as a proportion of total capital.
| |
| |-
| |
| |We
| |
| |48%
| |
| |Weight of equity calculated as the market cap as a proportion of total capital
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |'''Debt'''
| |
| |
| |
| |
| |
| |-
| |
| |Total Debt
| |
| |3642
| |
| |Cost of debt was calculated by taking interest expenses from the income statement and dividing this by the total debt making note of the fact that debt is a tax deductable item.
| |
| |-
| |
| |Interest Expense
| |
| | -177
| |
| |
| |
| |-
| |
| |Rate
| |
| |5%
| |
| |
| |
| |-
| |
| |Effective Tax Rate
| |
| |18%
| |
| |
| |
| |-
| |
| |Rd(1-t)
| |
| |4.0%
| |
| |
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |'''Equity'''
| |
| |
| |
| |
| |
| |-
| |
| |Risk Free Rate
| |
| |3.9%
| |
| |Capital asset pricing model was used to calculate the cost of equity. Risk free rate of the UK Gilt Yield was used.
| |
| |-
| |
| |Beta
| |
| |2.5
| |
| |Beta for the stock was found from Yahoo Finance<ref>https://uk.finance.yahoo.com/</ref>
| |
| |-
| |
| |Market Rate
| |
| |10%
| |
| |Current market rate was calculated as the average returns of the S&P 500 over the past 50 years.
| |
| |-
| |
| |Re
| |
| |19.1%
| |
| |
| |
| |-
| |
| |
| |
| |
| |
| |
| |
| |-
| |
| |'''<u>Discount Rate</u>'''
| |
| |'''11.32%'''
| |
| |
| |
| |-
| |
| |'''<u>Perpetuity Growth Rate</u>'''
| |
| |'''2.0%'''
| |
| |A perpetuity growth rate of 2% was used as this is sufficiently low to ensure that the company is not projected to increase in size far faster than the global economy in the very long term.
| |
| |}
| |
| {| class="wikitable"
| |
| !DCF
| |
| !
| |
| !2023
| |
| !2024
| |
| !2025
| |
| !2026
| |
| !2027
| |
| !Terminal Value (Perpetuity Growth)
| |
| !Notes
| |
| |-
| |
| | colspan="8" |'''''£ million'''''
| |
| |
| |
| |-
| |
| |FCF
| |
| |
| |
| | 214.0
| |
| | 208.1
| |
| | 233.1
| |
| | 247.0
| |
| | 259.4
| |
| | 2,840.1
| |
| |The terminal value of the company was calculated using the Gordon Growth Model<ref>https://einvestingforbeginners.com/terminal-value-gordon-growth-model-daah/</ref>.
| |
| |-
| |
| |PV of FCF
| |
| |841.81
| |
| | colspan="7" rowspan="10" |
| |
| |-
| |
| |Terminal Value
| |
| | 2,840.11
| |
| |-
| |
| |NPV of TV
| |
| |1661.67
| |
| |-
| |
| |Enterprise Value
| |
| |2503.48
| |
| |-
| |
| |Net Debt
| |
| | -1163
| |
| |-
| |
| |Equity Value
| |
| |3666.5
| |
| |-
| |
| |Shares Out
| |
| |758
| |
| |-
| |
| |'''<u>Equity Value per Share</u>'''
| |
| |'''£4.84'''
| |
| |-
| |
| |<u>'''Current share price'''</u>
| |
| |'''£4.46'''
| |
| |-
| |
| |''Difference''
| |
| |8.5%
| |
| |}
| |
| ===Sensitivity Analysis===
| |
| A sensitivity analysis was also conducted to reflect how changes in the required rate of return and perpetuity growth rate would affect the intrinsic value of the company.
| |
| {| class="wikitable"
| |
| ! colspan="2" rowspan="2" |
| |
| ! colspan="5" |Perpetuity Growth
| |
| |-
| |
| !1.0%
| |
| !1.5%
| |
| !2.0%
| |
| !2.5%
| |
| !3.0%
| |
| |-
| |
| ! rowspan="7" |WACC
| |
| !10.0%
| |
| |£4.93
| |
| |£5.07
| |
| |£5.24
| |
| |£5.42
| |
| |£5.63
| |
| |-
| |
| !10.5%
| |
| |£4.80
| |
| |£4.93
| |
| |£5.07
| |
| |£5.23
| |
| |£5.42
| |
| |-
| |
| !11.0%
| |
| |£4.68
| |
| |£4.79
| |
| |£4.92
| |
| |£5.07
| |
| |£5.23
| |
| |-
| |
| !11.3%
| |
| |£4.61
| |
| |£4.72
| |
| |'''£4.84'''
| |
| |£4.98
| |
| |£5.13
| |
| |-
| |
| !11.5%
| |
| |£4.57
| |
| |£4.67
| |
| |£4.79
| |
| |£4.92
| |
| |£5.07
| |
| |-
| |
| !12.0%
| |
| |£4.46
| |
| |£4.56
| |
| |£4.67
| |
| |£4.79
| |
| |£4.92
| |
| |-
| |
| !12.5%
| |
| |£4.37
| |
| |£4.46
| |
| |£4.56
| |
| |£4.66
| |
| |£4.78
| |
| |}
| |
| === Comparative company analysis ===
| |
| A relative valuation has been undertaken by using key metrics such as EV/Revenue and EV/EBITDA and comparing these across companies operating in the low-cost airline industry.
| |
| {| class="wikitable"
| |
| !
| |
| ! colspan="7" |Market Data
| |
| !
| |
| ! colspan="2" |Financials
| |
| !
| |
| ! colspan="2" |Valuation Ratios
| |
| |-
| |
| |'''Company'''
| |
| |'''Ticker'''
| |
| |'''Share Price'''
| |
| |'''Currency'''
| |
| |'''Shares Out /millions'''
| |
| |'''Equity Value /millions'''
| |
| |'''Net Debt /millions'''
| |
| |'''Enterprise Value /millions'''
| |
| |
| |
| |'''Revenue /millions'''
| |
| |'''EBITDA /millions'''
| |
| |
| |
| |'''EV/Revenue'''
| |
| |'''EV/EBITDA'''
| |
| |-
| |
| |easyJet plc
| |
| |LSE:EZJ
| |
| |4.62
| |
| |GBP
| |
| |758
| |
| |3,501
| |
| |150
| |
| |3,652
| |
| |
| |
| |6,960
| |
| |234
| |
| |
| |
| |0.52
| |
| |15.61
| |
| |-
| |
| |Wizz Air Holdings plc
| |
| |LSE:WIZZ
| |
| |25.49
| |
| |GBP
| |
| |103
| |
| |2,633
| |
| |3,890
| |
| |6,523
| |
| |
| |
| |3,900
| |
| | -387
| |
| |
| |
| |1.67
| |
| |N/A
| |
| |-
| |
| |Ryanair Holdings plc
| |
| |ISE:RYA
| |
| |15.83
| |
| |EUR
| |
| |1,140
| |
| |18,046
| |
| | -540
| |
| |17,506
| |
| |
| |
| |10,780
| |
| |2,370
| |
| |
| |
| |1.62
| |
| |7.39
| |
| |-
| |
| |Jet2 plc
| |
| |LSE:JET2
| |
| |11.55
| |
| |GBP
| |
| |214
| |
| |2,480
| |
| | -1,240
| |
| |1,240
| |
| |
| |
| |5,030
| |
| |513
| |
| |
| |
| |0.25
| |
| |2.42
| |
| |-
| |
| |JetBlue Airways Corporation
| |
| |NSQ:JBLU
| |
| |8.28
| |
| |USD
| |
| |328
| |
| |2,715
| |
| |2,750
| |
| |5,465
| |
| |
| |
| |9,750
| |
| |594
| |
| |
| |
| |0.56
| |
| |9.20
| |
| |-
| |
| |Southwest Airlines Co.
| |
| |NSQ:LUV
| |
| |37.25
| |
| |USD
| |
| |595
| |
| |22,166
| |
| | -2,290
| |
| |19,876
| |
| |
| |
| |24,830
| |
| |2,120
| |
| |
| |
| |0.80
| |
| |9.38
| |
| |-
| |
| |Spirit Airlines, Inc.
| |
| |LSE:0L8U
| |
| |19.21
| |
| |USD
| |
| |68
| |
| |1,311
| |
| |4,830
| |
| |6,141
| |
| |
| |
| |5,450
| |
| |169
| |
| |
| |
| |1.13
| |
| |36.35
| |
| |-
| |
| |Allegiant Travel Company
| |
| |NSE:ALGT
| |
| |123.95
| |
| |USD
| |
| |18
| |
| |2,284
| |
| |1,210
| |
| |3,494
| |
| |
| |
| |2,450
| |
| |361
| |
| |
| |
| |1.43
| |
| |9.68
| |
| |-
| |
| |Frontier Group Holdings, Inc.
| |
| |NSE:ULCC
| |
| |9.42
| |
| |USD
| |
| |219
| |
| |2,058
| |
| |2,280
| |
| |4,338
| |
| |
| |
| |3,570
| |
| | -23
| |
| |
| |
| |1.22
| |
| |N/A
| |
| |}
| |
| {| class="wikitable"
| |
| !easyJet plc valuation
| |
| !EV/Revenue
| |
| !EV/EBITDA
| |
| |-
| |
| |Average Comparable Ratio
| |
| |1.08
| |
| |12.4
| |
| |-
| |
| |Implied Enterprise Value
| |
| |7,516
| |
| |2,901
| |
| |-
| |
| |Net Debt
| |
| |150
| |
| |150
| |
| |-
| |
| |Implied Equity Value
| |
| |7,367
| |
| |2,752
| |
| |-
| |
| |Shares Outstanding
| |
| |758
| |
| |758
| |
| |-
| |
| |Implied Value Per Share
| |
| |9.72
| |
| |3.63
| |
| |-
| |
| |'''Average'''
| |
| | colspan="2" |'''6.67'''
| |
| |-
| |
| |'''Current Share Price'''
| |
| | colspan="2" |'''4.46'''
| |
| |-
| |
| |Difference
| |
| | colspan="2" |''49.6%''
| |
| |}
| |
| It can be seen that the implied share price by comparing EV/Revenue ratios versus EV/EBITDA ratios is very different. This highlights the limitation to this method of valuation.
| |
|
| |
|
| == References == | | == References == |
| <references /> | | <references /> |
| __INDEX__ | | __INDEX__ |
