Thursday newspaper share tips: Easyjet, Compass

Increased capacity is naturally only a good thing if demand is growing just as quickly, otherwise it ends in tears as the growing excess of seats forces carriers to mark down their prices in order to fill the aisles.

Easyjet said it said it carried 7% more passengers in the first half of its fiscal year to reach 31m. In parallel, revenues per seat declined by 6.6% to £51.29.

Smaller rivals Whizzair and Jet2 are adding to their aircraft fleets and Ryanair will likely not be far behind, having just pushed its long-term target for passenger numbers substantially higher.

Fortunately, the drop in jet fuel prices has softened the blow to budget airlines' bottom line, although significant price hedging means the company wasnt entitled to all the savings from the drop in jet fuel prices from $1,000 a tonne two years ago against $410 a tonne today.

Earnings per share at Easyjet have almost tripled over the past three years and the firm enjoys a healthy cash position at the bank.

Despite that, its shares are still trading at a large discount versus Ryanair in terms of their relative price-to-earings multiples and it is hard to see what might drive a re-rating.

"With clear signs of a highly competitive European budget flight market in the summer ahead, we’d sell before the shares hit turbulence," Questor said.

Compass shares have been strong performers and may be trading on what sounds like a high price-to-earnings multiple, but that is warranted, The Times's Tempus said.

The catering services giant has enviable scale in its key market, the US, from which it derived 56% of its sales over the first half of the year.

Its size in that market means it can tailor its product offering for different segments while reaping the gains from a common IT and backoffice platform, hence the 8.3% increase seen in North American revenues over the latest reporting period - handily beating City estimates.

Nevertheless, some of its other markets, with Brazil struggling in a gloomy economic environment reduced from commodity outfits in many corners of the world as they cut back on output.

Europe on the other hand recovered, with a notable improvement seen in Portugal and Spain.

The firm should be able to grow organically by 5.0% in 2016, even if margins remain flat because of underperformance in some of those regions.

Management is also taking a cautious line on acquisitions and any money not spent on inorganic growth will be funelled back to its shareholders.

It spent £144m on deals and £72m on share buybacks in the first half.

Yes, they are changing hands on 21 times earnings but "this is about par for the shares historically and sounds high, but I would be inclined to take a long-term view."

"Though margins may have flattened, there is the potential from acquisitions, while restructuring benefits are not yet through, 'buy'," Tempus said.