Key Morningstar Metrics for easyJet
- : GBX 691Fair Value Estimate
- : ★★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : HighMorningstar Uncertainty Rating
What We Thought of easyJet’s Earnings
EasyJet shares fell 12% on July 22 amid reports of a European Union review of airline ownership rules, then rose almost 6% the following day after it reported third-quarter profit before tax of £85 million, beating consensus, and summer booking trends improved.
Why it matters: The July 22 selloff repriced completion risk as the EU questions whether financial buyers can retain economic control while European investors hold 51% of the votes. The subsequent rebound reflects better underlying forward indicators than market expectations.
- EU officials warned that proxy ownership may not satisfy effective-control rules. Apollo has not disclosed its structure, while Castlelake’s proposed 51% EU vehicle could also face scrutiny.
- Third-quarter profit fell 70% as fuel costs rose £105 million, revenue per available seat kilometer fell 3%, and nonfuel unit costs rose 3%. However, fourth-quarter ticket yields are flat, and the load-factor gap narrowed to 2 points from 3 in May, while early winter ticket yields are up midsingle digits.
The bottom line: We maintain our GBX 691 probability-weighted fair value estimate, based on a 90% probability of Apollo’s 715p offer and 10% of our 470p stand-alone value.
- The EU review reflects the uncertainty in our probability weighting. The review concerns how a deal is structured, not whether easyJet EZJ can be acquired, and regulators have not assessed either proposal. The exercise is broader than easyJet, and legislative changes could take years.
- Apollo and Castlelake are both financially strong bidders, and their competing offers at substantial premiums show high interest. Either bidder can revise its ownership or governance structure to comply, limiting the risk that the review prevents a transaction.
