Kepler upgrades easyJet to 'buy', says it's among its most preferred in sector

Kepler Cheuvreux has upgraded budget airline easyJet to ‘buy’ from ‘hold’, lifted the price target to 1,106p from 1,053p and included it as a most preferred stock in the sector.

The bank said it prefers easyJet to hold-rated Ryanair for the first time since initiating coverage on the two stocks at the start of 2014.

It noted that since its initiation, easyJet has lost around 45% in absolute terms and has underperformed Ryanair by around 140%.

Kepler said it expects to see improving price trends during the summer months.

“As easyJet is highly exposed to European city tourism, we believe it was over-proportionally impacted by last year’s terrorist attacks. Thus, the company has the lowest comparable basis for 2017 in our coverage.

“We note that capacity increases in some of easyJet’s main cities (London, Paris, Geneva) will be modest this year. A major competitor, Vueling is expected according to current capacities in the systems to decrease capacities during some summer months.”

Kepler expects easyJet’s price trends to improve over the summer months from a year-on-year drop of 8% this quarter to a decline of only 2%.

The bank also pointed to the fact that easyJet trades below the value of its fleet, highlighting that it currently owns 74% of its fleet.

“Aircraft are US dollar denominated and the currency movements have significantly increased the value of easyJet’s fleet in British pounds. We think that easyJet should trade at least at the value of its fleet. Based on our analysis, we estimate the value of easyJet’s owned fleet at £4.2bn.”

“In our valuation, we consider a circa 3% premium (versus no premium before) to reflect easyJet’s strong slot portfolio at some capacity-constrained airports (Geneva, Paris Orly, etc.); slots that we understand could be transferred, together with divesting the aircraft operating these slots, to other airlines.”

On Monday, the airline reported an 8.2% rise in passenger numbers in February and said the load factor – which gauges how full the planes actually are – rose 1.6 percentage points to 92%.

At 1252 GMT, EZJ shares were up 1.1% to 966.50p.