Editing EasyJet plc
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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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* 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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|7783 | |7783 | ||
|8405 | |8405 | ||
| | |||
|- | |- | ||
|''% 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 | ||
| | |||
|- | |- | ||
|''% of revenue'' | |''% of revenue'' | ||
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|2% | |2% | ||
|2% | |2% | ||
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|- | |- | ||
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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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|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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|1332 | |1332 | ||
|1438 | |1438 | ||
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|- | |- | ||
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|1097 | |1097 | ||
|1185 | |1185 | ||
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|- | |- | ||
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|1487 | |1487 | ||
|1606 | |1606 | ||
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|- | |- | ||
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Line 980: | Line 1,005: | ||
|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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Line 1,028: | Line 1,056: | ||
|902 | |902 | ||
|974 | |974 | ||
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|- | |- | ||
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Line 1,045: | Line 1,075: | ||
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|- | |- | ||
! colspan=" | ! colspan="16" |Cashflow | ||
|- | |- | ||
|D&A | |D&A | ||
Line 1,062: | Line 1,092: | ||
|390 | |390 | ||
|421 | |421 | ||
| | |||
|- | |- | ||
|''% of revenue'' | |''% of revenue'' | ||
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|4% | |4% | ||
|4% | |4% | ||
| | |||
|- | |- | ||
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Line 1,110: | Line 1,143: | ||
| -1266 | | -1266 | ||
| -1367 | | -1367 | ||
| | |||
|- | |- | ||
|''% of revenue'' | |''% of revenue'' | ||
Line 1,126: | Line 1,160: | ||
|12% | |12% | ||
|12% | |12% | ||
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|- | |- | ||
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Line 1,158: | Line 1,194: | ||
| -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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Line 1,206: | Line 1,245: | ||
|'''247''' | |'''247''' | ||
|'''259''' | |'''259''' | ||
| | |||
|} | |} | ||
{| class="wikitable" | {| class="wikitable" |