Market News & Analysis

Top Story

EasyJet dives after silence on outlook

EasyJet's silence on the outlook for next year is not golden

EasyJet appears to have navigated, more fortunately than expected, around another summer of disruption, rival business collapses and barely relenting seat capacity that continues to weigh on prices. Passenger revenues and ancillary sales (AKA ‘extras’) outperformed, enabling the group to steer expectations to the upper end of 2019/20 earnings that will be released next month. Trouble is, its fourth-quarter trading statement is conspicuously silent about the outlook for the forthcoming 2020/21 year. That undermines the group’s attempt to emit a halo of confidence following investments in “operational resilience” that reduced the impact of disruptions. Investors, whose patience has been worn thin after years of geopolitical and labour disruptions plus over-capacity, aren’t impressed. That’s led to searing share price punishment, with a drop of as much as 6%, EZJ’s biggest since May. With the stock having gained as much as 32% from mid-August lows, the group either had to demonstrate a solid basis for a re-rating, or, at worst, face a return towards the year’s lows.

Silence on the outlook shifts attention back to less than solid aspects of recent trading and outlook comments limited to the current year. Headline costs are set to rise 12%, driven by fuel and adverse FX movements. Excluding fuel and using flat FX rates, cost per seat is falling. This suggests EZJ is currently on the wrong side of its fuel price hedges and that its intermittently poor currency risk management has returned.

The question of how firm revenue momentum was on an underlying basis in peak months also arises. The group has been clear about benefits from BA and Ryanair strikes and Thomas Cook’s collapse. Speaking of the latter, there are signs that some of the recent share price optimism, predicated on capacity reduction, may have run too far. The bankrupt group accounted for just 1.5% of medium-haul, according to Bloomberg data. That means airlines will need to keep statements about potential advantages quite limited. Furthermore, Thomas Cook’s exit is also expected to reduce airline lease rates, tempting capacities even higher. The anticipated return of Boeing’s Max in Q1 2020 should tend towards a similar effect.

Against that backdrop, easyJet’s tacit message about the forthcoming year, still speaks volumes.

EasyJet Plc. chart

Indications that the shares were about to pull out of their dive since June have been disproved on Tuesday. The stock traded right into the top of its declining channel, backed by a rising RSI and 21-day exponential average, before being overcome. Price action confirms the validity of 1135p as resistance: it was initially an undeniable support on in September 2017, then resistance again earlier this year. Failure to stabilise here tends to suggest EZJ is on its way back down to long-term supports roughly between 850p-912p.

EasyJet plc. CFD – Weekly

Source: City Index


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.