EasyJet flies lower on Barclays downgrade

EasyJet flew lower on Thursday as Barclays cut its recommendation on the budget airline to 'underweight' from 'equalweight' and chopped the price target to 1,200p from 1,500p, saying this was "a purely relative call".

Barclays said that while the airline operates a strong network, is exposed to a structurally attractive part of the market and delivers strong financials, its growth profile lacks some momentum, not helped by difficult comparables and possible UK demand-related risk.

"With a network that is focused on primary constrained airports, organic growth opportunities are limited, and the incremental revenue associated with these premium slots is currently being offset with incremental costs given the level of delays and disruptions associated with operating with constrained infrastructure.

"The new initiative to tackle operational resilience is necessary in our view, and whilst they should help to offset further disruption in the future, they will likely come with some incremental capex and opex as the investment in resilience is made."

The bank added that while the company's plans for easyJet Holidays, business, loyalty and data are interesting, but should result in near-term incremental opex with unclear quantum and timing of revenue upside.

In its note on European airlines, Barclays said overweight-rated British Airways owner International Consolidated Airlines Group offers fundamental value and is "the best-in-class" airline operator.

Barclays cut its price target on IAG to 700p from 780p, highlighting short-term uncertainties and less momentum than was seen in 2018.

Ryanair, which it also rates at 'overweight' saw its price target cut to €12.70 from €15.80.

"Although Ryanair’s cost base has been the major focus for investors over recent months, we hold the view that despite some labour cost inflation and productivity softening, Ryanair’s unit cost base will still remain best-in-class.

"We believe that management will continue to use the cost base advantage to drive the revenue growth story, with market share and network shift opportunities remaining. We continue to believe that Ryanair will be the structural ‘winner’ in a European market that is growing and consolidating."

At 1540 GMT, Easyjet shares were down 1.3% to 1,177.30p, IAG shares were 1.1% higher at 617.27p and Ryanair shares were 0.2% higher at €10.06.