EasyJet flies lower again as SocGen downgrades, slashes price target

EasyJet flew lower again on Monday as Societe Generale downgraded the stock to ‘sell’ from ‘hold’ and slashed the price target to 820p from 1,150p following the airline’s profit warning last week, pointing to a double whammy of a soft demand environment and FX headwinds.

The bank said it reckons the issues weighing on the company in full-year 2016 will persist or intensify. It noted the pound is now trading at a 30-year low versus the dollar, which will gradually inflate EZJ’s fuel bill, with hedging contracts expiring.

“EasyJet’s fuel bill is currently around £1bn, meaning that every 1% of GBP weakening versus the USD pushes the fuel bill up roughly £10m with a two-year delay. The current year is 74% hedged at a GBP/USD rate of 1.52, but with a two-year time lag we expect an effective rate close to 1.30.”

In addition, it highlighted the fact sterling has also dropped against the euro, making holidays on the continent more expensive and said political uncertainties and terror risks as unlikely to dissipate any time soon.

SocGen said it expects further earnings declines in full-year 2017 and 2018.

The bank said the market environment was deteriorating and while comps are likely to ease from November onwards, pricing will remain under pressure into next year.

Last week, the budget carrier warned that it would take a £90m hit from the weak pound, which pushes up the price of jet fuel.

At 0840 BST, the shares were down 3.3% to 866.50p.