Can Easyjet Plc Weather The Storm And Turn Out To Be A Good Long-Term Investment?

Can Easyjet Plc Weather The Storm And Turn Out To Be A Good Long-Term Investment?

Summary

  • During the crisis caused by pandemic, the FTSE 100 company has yielded 108.29% price return
  • The aviation sector has been under immense pressure and faced criticism with reference to refunds & cancellations.
  • Easyjet Plc has delivered a decent increase in revenue during the first half of the financial year 2020
  • The company has a resilient business model and enough liquidity

The FTSE 100 was hovering around just under 5,000 mark on 23rd March. In just two months’ time, the FTSE 100 has climbed it’s way up and was hovering near 6,500 mark on June 10 This means that if you had invested in FTSE 100 index tracker fund on 23rd March, the investment would have yielded 30 per cent return in just two months’ time. Same is the case for most of the FTSE 100 quoted businesses.

The Travel & Leisure sector was severely impacted by the outbreak of novel coronavirus. As the nation geared up for lockdown on 23rd March, the travel restrictions were in place. The businesses operating in this sector were forced to shut shops. However, the airline sector was partially operational to keep the supply chain up and running.   

The sector has been under immense pressure and has been facing criticism with reference to refunds & cancellations. Traditionally, people use to plan their holidays during this part of the year. Moreover, people have lost the confidence to travel safely in the wake of the novel coronavirus, making it a double whammy for the travel companies in most of the countries.  Easyjet Plc announced earlier that it had to ground its fleet amid the coronavirus crisis to save £4.5 billion in expenses and is likely to furlough nearly 45 per cent of its workforce.

The UK’s government has allowed the airline carriers to operate amid lockdown easing. Easyjet Plc is likely to commence flights on small routes in the UK and other neighbouring countries. The company is expected to operate with enhanced safety measures such as the use of face masks would be mandatory.

Later on, Easyjet Plc would commence operations on European routes by August to capitalise on the holiday season. The company has already launched attractive pricing to lure customers.

However, the new quarantine regime introduced by the UK government might hinder the recovery of the airline companies. The incoming travellers would have to undergo self-isolation for a period of two weeks. Stricter policies, along with lesser confidence in travellers would be detrimental for the sector.

In March, the IATA (International Air Transport Association) warned the European airlines against a plunge in demand by at least 38 per cent due to the novel coronavirus outbreak. The commercial airlines are expected to lose £63 billion in passenger revenues by the end of the remaining year, as per its estimates.

The European airline has garnered support from UK’s treasury as it managed to secure a loan of £600 million. In addition, the airline is expected to raise further £400 million from existing creditors to ensure sustainability during these unprecedented times.

FTSE 100 listed EasyJet Plc (LON: EZJ) is a Luton, the United Kingdom-based low-cost European point-to-point airline company. The company is known for charging lower fares, which is achieved through operational efficiency on point-to-point routes. The company has four geographic segments, which are differentiated according to the origin country. The segments include the United Kingdom, Southern Europe, Northern Europe and Other.

The strong and integral growth potential of the company

Driven by an increase in the passenger revenue and ancillary revenue, the total revenue surged by 1.6 per cent to GBP 2,382 million in the first half of 2020 from GBP 2,343 million in the first half of 2019. The reported airline revenue per seat was up by 9.6 per cent to GBP 55.60 in the first half of the financial year 2020 versus GBP 50.71 in the first half of 2019. The group’s reported headline airline cost per seat was up by 5.5 per cent to GBP 59.75 in the first half of 2020 from GBP 56.66 in the previous year.

According to its recent trading update, the company has delivered a decent increase in revenue during the first half of the financial year 2020. The company has launched easyJet holidays successfully in the first quarter of the financial year 2020, which could benefit the growth of the company. Recent Coronavirus outbreak had impacted the growth of the company, and further pressure on its revenue and profitability could be seen in the near term. Environment and sustainability issues could affect the revenue and profitability of the company. Macroeconomic and geopolitical factors could also affect the performance of the company.

2020 has been a tough year, and a lot of businesses are likely to go into the administration. Easyjet Plc has always had a strong balance sheet. Over the period of three years, Easyjet Plc recorded a CAGR (compound annual growth rate) of 11 per cent, as its revenue grew from £4,669.00 million in 2016 to £6,385.00 million in 2019. Though, the overall expenses and interest payments have increased in these three years resulting in a substantial decrease in profits. The company net profit was just 5.46 per cent of the revenue in 2019, which is quite low. But we cannot really say that it is good or bad. The UK market has been the epicentre of uncertainties. In recent years, the market was tormented by uncertainties with reference to Brexit in particular. Then came the novel coronavirus to add insult to injury.  

Easyjet Share Price Performance

Daily Chart as on 11-June-2020, before the market closed (Source: Thomson Reuters)

On 11th June 2020, while writing at 15:39 AM GMT, EZJ shares were clocking a current market price of GBX 783.80 per share. The company’s market capitalisation was at £ 3,250.75 million at the time of writing.

On 13th February 2020, the shares of EZJ have touched a new peak of GBX 1,570 and reached the lowest price level of GBX 410 on 19th March 2020 in the last 52 weeks.

The stock’s traded volume was hovering around 2,293,185 at the time of writing before the market close. The volatility of the company’s stock was 76 per cent higher as compared with the index taken as the benchmark, as the beta of the company’s stock was recorded at 1.73 and its dividend yield stood at 4.99 per cent.

EasyJet shares were trading well above its 20-day SMA line. Since the stock created a bottom on 19th March, the stock has yielded 108.29 per cent price return. The company’s stock plunged by 40.27 per cent from the start of the year to till date. However, it seems that the company has the potential to wither the storm and can have better performance in the long run.

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