EasyJet 'may be takeover target' amid consolidation
EASYJET could become a takeover target as consolidation continues in Europe's airline industry, according to Davy Stockbrokers.
In a new report on the sector, the broker believes EasyJet's profit growth will be constrained in 2020 due to weak sterling, "stubborn competitor capacity" and a tough prior year fuel comparator.
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Davy analysts Stephen Furlong and Ross Harvey said weak sterling also inhibited EasyJet's pre-tax profits between 2015 and 2017.
"Ultimately, a lack of strategic opportunity constrains the multiple, and could make EasyJet a takeover target," according to the analysts.
EasyJet plans to increase its fleet to 323 aircraft by the end of its 2019 financial year, to 349 in 2020 and 352 by the end of the 2021 financial year.
The carrier, headed by CEO Johan Lundgren, currently has a market capitalisation of £3.76bn (€4.2bn).
Davy pointed out that a fleet-based valuation of EasyJet suggests an underlying value "in excess" of £10 per share. The airline's shares are currently trading at about £9.20.
The broker also said that EasyJet's strategy is focused on key airports, serving valuable catchment areas which represent Europe's top markets by gross domestic product, thereby driving both business and leisure travel. It now has a number one position in 27 airports.
"The CEO's focus on enhancing the performance of the business is particularly concentrated on ancillaries, data optimisation and business penetration," said the Davy analysts.
They added: "The presence of the EasyJet brand in verticals such as package holidays has the potential to improve the group's earnings resilience in the future. However, such initiatives will clearly take time."
The analysts said although EasyJet shares trade below asset value, it is "lacking catalysts".
EasyJet announced during the summer that Ryanair chief operations officer Peter Bellew would join the carrier in 2020. He is set to leave Ryanair at the end of this year. However, Mr Bellew and Ryanair are locked in a contract dispute.
Davy said that Ryanair expects high fuel prices and over-capacity in the European short-haul market to lead to further airline failures this winter, creating more growth opportunities for the group's four airlines.
"With one of the best balance sheets in the industry, the lowest cost base and the structures put in place at the four group airlines - Ryanair DAC, Lauda, Buzz and Malta Air - Ryanair remains the industry structural winner," according to Davy, which acts as the airline's own broker.