HSBC ups easyJet ahead of May balance sheet review

HSBC upgraded easyJet to ‘hold’ from ‘reduce’, lifting the target price to 1,575p from 1,500p following the recent share price correction and ahead of the company’s balance sheet strategy presentation in May.

The bank said it remains cautious towards the low-cost carrier sector in Europe generally.

However, it said EasyJet has committed to a balance sheet review in May and this could increase shareholders’ returns.

“Our model assumes, as before, an increase in the payout ratio to 50% and we also model a biannual special dividend of £60m. We do not think our view is unique, yet any move to increase shareholders’ remuneration is likely to be supportive for the shares.”

HSBC noted EasyJet’s argument that weakness in the first half results was down to one-off effects such as events in Egypt and the terror attacks in Paris.

The bank said while it appreciates the one-off events did have a material impact in shaping air travel demand, the industry is deteriorating, and becoming more competitive, quite specifically for easyJet.

“As such, we are not wholly confident that the underlying demand is as robust as portrayed.”

“The accelerating growth of both Ryanair and easyJet, and the surging growth of the chasing peloton of Wizz, Norwegian, Vueling, Eurowings and Transavia, point towards increasing competition,” it said, adding that new markets end up more competitive than the installed network base.

At 0923 GMT, easyJet shares were up 0.1% to 1,580p.