US Edition easyJet
£12.14+11p
Questor says SELL
BUDGET airline easyJet reported another strong period of passenger growth yesterday. However, those growth rates have slowed markedly throughout the year and the shares still look exposed to aggressive pricing from rivals.
easyJet said that passenger numbers for the 12 months ended October were 4pc higher than the comparable period. That rate of growth is significantly slower than the 7.1pc growth in passenger numbers reported for the 12-month period ended March this year.
But rival Ryanair reported passenger numbers up 2pc in the six months ended September. So it looks like easyJet is winning market share and passengers from its rival. However, what shocked the market in Ryanair’s half-year results was the announcement that the company expects to aggressively cut prices in the second half of the year.If one of the largest budget airline companies is reducing its prices then it seems unlikely that easyJet will be unaffected.
easyJet management maintained full-year, pre-tax profit forecasts of about £460m, giving 92.7p in earnings per share in the September trading update. Ryanair, by comparison, issued a second profit warning in two months and said ambitious growth plans were to be scaled back.
Shares now trade on a 2013 earnings multiple of 13.4 times, well above the 12-month average earnings multiple of about 10.8 times. Investors are now paying more than 2.4 times the net asset value for the shares, the 12-month average is about 1.3 times.
The current price even looks full on next year’s numbers. Brokers forecast another 9pc increase in revenue and an 11pc rise in pre-tax profits next year, but that still leaves shares on a 2014 earnings multiple of 12 times.
easyJet shares have fallen 2pc since Questor said sell at the start of September and underperformed the FTSE 100 by 5pc. Given pricing turbulence, we retain that view. Sell.