Editing EasyJet plc
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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 | # '''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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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> | 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> | ||
== Market == | == Market == | ||
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== Competition == | == Competition == | ||
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. | 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. | ||
'''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. | '''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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* 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. | * 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 | * 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. | ||
* 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% | * 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. | * 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. | ||
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=== What's the expected return of an investment in the company? === | === 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 | 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 further investigation is required to refine the model.''' | ||
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'. | 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'. | ||
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# Comparing key financial metrics of the company to other similar investment | # 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 | 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 '''WHY''' | ||
|- | |- | ||
|Financial Projections | |Financial Projections | ||
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===Discounted Cash Flow Model=== | ===Discounted Cash Flow Model=== | ||
{| class="wikitable" | {| class="wikitable" | ||
| colspan=" | | colspan="16" |Current Share Price: £4.46 | ||
|- | |- | ||
!''£ million'' | !''£ million'' | ||
! colspan="9" |''Historical'' | ! colspan="9" |''Historical'' | ||
! colspan="5" |''Projected'' | ! colspan="5" |''Projected'' | ||
! | |||
|- | |- | ||
! | ! | ||
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!2026 | !2026 | ||
!2027 | !2027 | ||
!Notes | |||
|- | |- | ||
! colspan=" | ! colspan="16" |Income Statement | ||
|- | |- | ||
|Revenue | |Revenue | ||
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|10212 | |10212 | ||
|11029 | |11029 | ||
| | |||
|- | |- | ||
|''% growth'' | |''% growth'' | ||
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|5% | |5% | ||
|8% | |8% | ||
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|- | |- | ||
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|7783 | |7783 | ||
|8405 | |8405 | ||
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|- | |- | ||
|''% of revenue'' | |''% of revenue'' | ||
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|76% | |76% | ||
|76% | |76% | ||
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|- | |- | ||
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|2429 | |2429 | ||
|2623 | |2623 | ||
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|- | |- | ||
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|239 | |239 | ||
|258 | |258 | ||
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|- | |- | ||
|''% of revenue'' | |''% of revenue'' | ||
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|2% | |2% | ||
|2% | |2% | ||
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|- | |- | ||
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|390 | |390 | ||
|421 | |421 | ||
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|- | |- | ||
|''% of revenue'' | |''% of revenue'' | ||
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|4% | |4% | ||
|4% | |4% | ||
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|- | |- | ||
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|27 | |27 | ||
|29 | |29 | ||
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|- | |- | ||
|''% of revenue'' | |''% of revenue'' | ||
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|0.3% | |0.3% | ||
|0.3% | |0.3% | ||
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|- | |- | ||
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|676 | |676 | ||
|730 | |730 | ||
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|- | |- | ||
|% of revenue | |% of revenue | ||
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|7% | |7% | ||
|7% | |7% | ||
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|- | |- | ||
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|1438 | |1438 | ||
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|1185 | |1185 | ||
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|- | |- | ||
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|1487 | |1487 | ||
|1606 | |1606 | ||
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|- | |- | ||
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|195 | |195 | ||
|211 | |211 | ||
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|- | |- | ||
|''Effective tax rate'' | |''Effective tax rate'' | ||
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|18% | |18% | ||
|18% | |18% | ||
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|- | |- | ||
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|902 | |902 | ||
|974 | |974 | ||
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|- | |- | ||
! colspan=" | ! colspan="16" |Cashflow | ||
|- | |- | ||
|D&A | |D&A | ||
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|390 | |390 | ||
|421 | |421 | ||
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|- | |- | ||
|''% of revenue'' | |''% of revenue'' | ||
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|4% | |4% | ||
|4% | |4% | ||
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|- | |- | ||
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| -1266 | | -1266 | ||
| -1367 | | -1367 | ||
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|- | |- | ||
|''% of revenue'' | |''% of revenue'' | ||
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|12% | |12% | ||
|12% | |12% | ||
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|- | |- | ||
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| -233 | | -233 | ||
| -252 | | -252 | ||
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|- | |- | ||
|% of revenue | |% of revenue | ||
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| -2% | | -2% | ||
| -2% | | -2% | ||
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|- | |- | ||
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|'''247''' | |'''247''' | ||
|'''259''' | |'''259''' | ||
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|} | |} | ||
{| class="wikitable" | {| class="wikitable" |