THIS REPORT WAS PREPARED BY MORITZ GEIGER, A MASTERS IN FINANCE STUDENT OF THE NOVA SCHOOL OF BUSINESS AND
ECONOMICS, EXCLUSIVELY FOR ACADEMIC PURPOSES. THIS REPORT WAS SUPERVISED BY ROSÁRIO ANDRÉ WHO REVIEWED THE
VALUATION METHODOLOGY AND THE FINANCIAL MODEL. (SEE DISCLOSURES AND DISCLAIMERS AT END OF DOCUMENT)
See more information at WWW.NOVASBE.PT Page 1/32
MASTERS IN FINANCE
EQUITY RESEARCH
The Airline industry shows no sign of stopping its growth
with a forecasted passenger growth rate of 2,7% in Europe for the
next 20 years.
EasyJet’s most important markets UK, France, Germany,
Italy Spain, Portugal, Switzerland and the Netherlands indicate a
positive GDP outlook.
EasyJet was able to achieve a record EBITDAL margin of
20% in FY15 beating its competitors due to a leading load factor
and cost advantages. For FY16 an EBITDAL of £980 Million
leading to a Net Profit of £565 Million was forecasted.
The companies D/EV was converging to zero in the past
and is now expected to settle at 0.05%.
A discounted cash flow valuation method using a wacc of
4,98% provided a price target of £19,69 for FY16 resulting in the
recommendation of a BUY position due to an expected capital gain
of 11,76% and an expected cash gain of 3,27% at the current
share price of £17,62.
The price target is very sensitive to a decrease in
passenger volume as a 1% decrease would already lead to a
HOLD recommendation.
Company description
EasyJet is a British low-cost carrier which aims to be Europe’s
number one short-haul airline. The company is based in London
and operates its services at airports all over Europe creating a
network consisting of more than 130 routes.
EASY JET COMPANY REPORT
AIRLINES 08 JANUAR 2016
STUDENT: MORITZ GEIGER [email protected]
EasyJet continues success story
…driven by passenger growth and operational efficiency.
Recommendation: BUY
Price Target FY16: 19,69 £
Price (as of 8-Jan-16) 17,62 £
Source: Bloomberg
52-week range (£) 15,21-19,29
Market Cap (£m) 6629
Outstanding Shares (m) 397.208
Source: Bloomberg
(Values in £ millions) 2015 2016F 2017F
Revenues 4,685 5.037 5.494
EBITDAL 939 980 1032
EBITDAL Margin 20% 19,5% 18,8%
Net Profit 547 565 689
(Value in millions)
Seats flown 75 80,4 86,7
Passengers 68,6 73,1 78,9
EPS (£) 1,38 1,42 1,48
Source: Easy Jet’s Annual reports; Authors Valuation model
EASY JET COMPANY REPORT
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Table of Contents
EXECUTIVE SUMMARY .......................................................................... 3
COMPANY DESCRIPTION ....................................................................................... 4 Fleet...................................................................................................... 7 Cost Advantages ................................................................................ 8
SHAREHOLDER STRUCTURE ................................................................................. 9
AIRLINE INDUSTRY & CORE MARKETS ............................................... 9
MACROECONOMIC ENVIRONMENT ....................................................................... 9 Worldwide ............................................................................................ 9 Core markets..................................................................................... 10
EUROPEAN AIRLINE INDUSTRY ........................................................................... 11 Current Situation ............................................................................... 11 Outlook ............................................................................................... 14
COMPERABLES ................................................................................................... 16
FORECAST .............................................................................................19
PASSENGER VOLUME .......................................................................................... 19 REVENUES, EBITDAL, EBIT AND NET PROFIT ................................................ 21 WORKING CAPITAL ............................................................................................. 23 CAPITAL EXPENDITURES .................................................................................... 24 FCF..................................................................................................................... 24
VALUATION ............................................................................................25
CAPITAL STRUCTURE ......................................................................................... 25 WACC ................................................................................................................ 25 RECOMMENDATION ............................................................................................. 27 SENSITIVITY ANALYSIS ....................................................................................... 27
APPENDIX ..............................................................................................30
FINANCIAL STATEMENTS .................................................................................... 30
DISCLOSURES AND DISCLAIMER .......................................................32
RESEARCH RECOMMENDATIONS ........................................................................ 32
EASY JET COMPANY REPORT
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Executive summary
In terms of passenger volume the airline industry was on a continuous expansion
throughout the last years and the International Air Transportation Association
(IATA) forecasts an average growth rate of 2,7 for the next 20 years in Europe
alone. Additionally, the low-cost segment showed especially strong growth and
increasing market shares surpassing the 40% mark in 2015.
With the additional fact of an optimistic GDP outlook for the core markets, UK,
France, Italy, Germany, Portugal Spain, and the Netherlands EasyJet is expected
to face a favourable macro-economic environment.
In presence of this external situation we believe that EasyJet has competencies
to significantly grow passenger numbers and profits. The company’s fleet and
flight network will be continuously extended and modernized reaching a 304
aircrafts strong fleet by 2019. This represents an increase of 26% from the
current 241 aircrafts operated. Combined with an industry leading load factor of
currently 91,5% this will enable the airline to increase the passenger volume by
19,1 million in the next four years. In terms of costs EasyJet has the advantage
that the low-cost approach is incorporated in the companies’ structure and
strategy since the founding. A fact that resulted in COSS without fuel of £33,96
per seat flown in FY15. From the major European airlines only RyanAir is able to
compete on this level. With strong competition and a highly segmented market
this inability to compete with the costs causes losses for a lot of other European
Airlines. Therefore, several cost cutting methods are currently undertaken in
order to keep this position allowing EasyJet to minimize the growth of its costs.
As a result the COSS without fuel are forecasted to experience an average
growth rate of 8,16% only slightly above the passenger growth for the next four
years.
With the current oil price we additionally except an only marginally increased fuel
bill for the coming FY of £1280 Million resulting in another record EBITDAL and
Net Profit of £980 Million and £565 Million respectively.
Given a Debt-to Equity ratio of 0,05% and a wacc off 4,98% the target price for
FY16 was estimated at £19.69 representing an expected capital gain of 11,76%
and an expected cash gain of 3,27% with the current share price being £17,62.
Consequently we recommend a BUY position for the stock.
However, a sensitivity analysis exposed potential risks. The company’s success
is naturally highly dependent on passenger volume where a 1% decrease leads
to a HOLD and a 5% decrease to a SELL recommendation.
Due to fleet and network growth and operational
efficiency easyJet is expected to capitalize on favourable
market conditions.
Growth in the Airline industry shows no sign of stopping
with a forecasted growth rate of 2,7% and an increasing
LCC market share.
Positive GDP Outlook for EasyJet’s core markets
enables growth in demand.
BUY position is recommended due to a total expected shareholders return of
15,04%.
High exposure to passenger
volume constitutes major risk.
Figure 1:GDP Growth forecast Source: Data from OECD, own diagram.
Figure 2: Net Profit (million £) Source: Author’s valuation model, own
diagram.
EASY JET COMPANY REPORT
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Rank Airport EasyJet
UK
1. Heathrow
2. Gatwick Base
3. Manchester Base
France
1. Charles de Gaulle Base
2. Paris-Orly Base
3. Nice
Italy
1. Rome Base
2. Milan-Malpensa Base
3. Milan-Laneta
Germany
1. Frankfurt
2. Munich
3. Düsseldorf
Portugal
1. Lisbon Base
2. Porto Base
3. Faro
Spain
1. Madrid
2. El-Prat Barcelona Base
3. Mallorca
Netherlands
1. Amsterdam
2. Eindhoven
3. Rotterdam
Switzerland
1. Zurich
2. Geneva Base
3. Basel Base
Company overview
EasyJet incorporated was founded in March 1995 by Sir Stelios Haji-Ioannou as
a provider of low-cost air services later becoming the first of many subsidiaries of
the easygroup (EasyGroup holdings Limited). Since then the airline has grown to
become the second-largest European low-cost carrier based on passenger
numbers. Being second to Irish airline RyanAir EasyJet’s goal naturally is to
become Europe’s preferred short-haul airline.
Company description
From the company’s headquarter at London Luton Airport EasyJet
operates in 31 countries providing over 700 routes from its bases
across Europe mainly focusing on high GDP markets. In order to
deliver these services the company continuously increased its fleet
size to 241 aircrafts by the end of the financial year 2015 (30.09.15).
In order to illustrate EasyJet’s position an overview over the
company’s bases in the most important countries is provided in
Table 2 below while Table 1 on the left displays the busiest airports
in each relevant country in order to show EasyJet’s position on
Europe’s major airports.
A striking fact is that EasyJet shows a rather low presence in
Germany despite the fact that a wealthy economy and a lot of
potential customers seem to provide a promising environment. The
reason is a strong market penetration by local low-cost providers
such as leader AirBerlin with a 43% market share and Germanwings
with a 29% market share in the year 2014.1 However, as we will
discuss in detail later these Airlines are not profitable giving
opportunities for EasyJet to steal market shares from the
incumbents in the future. In all other main countries EasyJet has
bases on the biggest or second biggest airports of the respective
country.
1 Market shares taken from “Low Cost Monitor 2014” from the German centre for aviation and space flights.
Founded
1995
Table 1: Busiest Airports* and EasyJet bases
*according to number of boardings Source: Own diagram.
EASY JET COMPANY REPORT
PAGE 5/32
Table 2: EasyJet’s Market Share in main countries and bases (Source Annual Report 2015, own diagram)
Country
Market Share
in country
Base Based
Aircrafts
Uk 20% London: Gatwick, Luton, Southend, Stansted;
Bristol, Belfast, Edinburgh, Liverpool, Manchester, Newcastle, Inverness Airport
134
France 14% Charles de Gaulle, Paris Orly, Toulouse Lyon 26
Italy 12% Milan Malpensa, Naples, Nice, Venice (from
2016), Rome Fiumicino (Closing 2016) 29
Germany 4% Berlin-Schoenefeld, Hamburg 12
Portugal 13% Porto, Lisbon 6
Spain 8% Barcelona (from Feb 2016) -
Netherlands 9% Schipohl Amsterdam 3
easyJet Switzerland2
23% Geneva, Basel 23
On the 22th November 2000 the first easy jet plc shares have been issued under
the ticker EZJ. In order to provide an overview on the recent performance of the
stock Figure 3 below illustrates the share price development by displaying the
yearly return in comparison to the MSCI World Index (MXWO) as well as biggest
competitor RyanAir (RYA) for the last 10 years.
Figure 3: Yearly Return 2005-2015 - EasyJet vs. RyanAir vs. MSCI World. Source: Data from Bloomber, own diagram
-40,00%
-30,00%
-20,00%
-10,00%
0,00%
10,00%
20,00%
30,00%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Ye
arl
y R
etu
rn
Year
EasyJet RyanAir MSCI World
2 EasyJet Switzerland is a subsidiary where easyJet holds 49% of shares but has a dominant influence.
IPO
2000
EASY JET COMPANY REPORT
PAGE 6/32
What can be seen here is that EasyJet‘s return was dropping negative in
response to the financial crisis in 2007 and 2008. After that period the stock
seems to have recovered and constantly earned positive returns similar to
biggest competitor RyanAir. However, these returns appear to be rather low and
both airlines clearly struggled to continuously outperform the index representing
the market.
On the first sight these results seem very odd when considering that EasyJet
constantly reported record profits and showed significant growth of its fleet during
that time period. When the analysis is extended to Europe’s leading legacy
carriers IAG, KLM-Air France and Lufthansa the impression arises that the
European airline industry in general showed rather weak returns on the financial
market in recent years.
Investors have historically been cautios when it comes to the airline industry
citing very high fix costs and a large exposure to macroeconomical developments
as major problems. This is hereby particulary true for the european industry
where a lot of airline struggle to earn profits in a highly segmented market with
fierce competition. Hence, a suitable business model has to be implemented and
enforced strictly in order to compete in this industry. However, EasyJet seemingly
has been able to do exactly that in the past showing a growing fleet size, record
net profits and increasing EBITDAL margins for the last five years in a row.
Figure 4: Easy Jet - Net Profit and EBITDAL Margin 20010-2015 Source: Author’s valuation model.
With this in mind it is not surprising that for the future EasyJet’s management
team around Chief Executive Officer Carolyn McCall announced that the airline
will continue to follow its current strategy of delivering point to point flights from
primary airports in high income countries and thereby achieve revenue growth
EASY JET COMPANY REPORT
PAGE 7/32
and high shareholder returns. This positive outlook is hereby mainly based on
four internal drivers:
The Company’s growing fleet, the newly introduced customer
loyalty program, the digital innovation with a leading web
presence / mobile app and the maintenance of a cost
advantage through structural advantages and cost cutting
measures such as EasyJet Lean. EasyJet therefore believes
that it will be able to grow its capacity by 7% in 2016 and
consequently argues that there are significant long term
opportunities to grow both the revenues and profits. This view is
generally strongly aligned with our assessment that will be
discussed in detail later on.
Fleet
We consider the company’s fleet and cost structure as its most valuable
properties. Naturally the fleet composition is thereby strongly related to the cost
side of things as it represents a hugely important cost driver.
In order to allow every crew member to work in different machines and to achieve
cost savings in service and repair cost EasyJet applies the strategy of only
operating Aircrafts of the same type. An approach that is very common among
low cost airlines allowing for significant economies of scale.
The company’s fleet is currently comprised by Airbus models of the A320 family.
More precisely, the fleet solely consists of the models A319 and A320 whereas
148 (61%) are A319s and 93(49%) are A320s. The delivery of another 56 A320s
is thereby already set for 2016-2021. The move towards a higher share of 320s
in the fleet is very valuable as the model offers more seats and a more efficient
use of fuel allowing for lower unit costs. Additionally, EasyJet has already
committed to the purchase of 30 and owns purchase right of another 100 of
Airbus new creation A320neo. According to manufacturer Airbus this next
generation aircraft promises a reduction of fuel consumption of up to 20%
compared to older models.
EasyJet is thereby confident that the fleet reformation and expansion can mainly
be funded internally with an already strong cash balance and future earnings and
through the achievement of very favourable prices as the airline is one of Airbus’
biggest and most important customers.
Figure 5: Aircrafts at year end 2009-2015 Source: easyJet plc. Annual Reports; own diagram
EASY JET COMPANY REPORT
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Cost Advantages
On top of its fleet composition and close relationship with Airbus
EasyJet faces a few other valuable cost advantages. EasyJet
has incorporated the focus on cost in its structure and business
model from the start. The companies cost structure is historically
lean with long term contracts with relevant partners such as
Airports as well as staff such as pilots, cabin crew or the ground
handling agents. This sets EasyJet apart from legacy carriers
and their low-cost subsidiary as they in contrast did not manage
to imply a low-cost business model equally strictly in the past.
In order to keep this position further steps to keep this advantage
have been taken in the recent past. The most prominent one is a
new long-term maintenance and inventory management contract
that was signed with the AJW Group early in 2015. Due to the
multi-year horizon and large scale of these deal it is reasonable
to believe that it allows EasyJet to achieve economies of scale
as an important part of the cost-cutting initiative the airline calls
“EasyJet Lean”. Quantifying these measures our model forecasts
an average 8,16% year growth rate for COSS without fuel for the
next four years 2016-2019 while the number of passengers
grows by an average rate of 6,33% for the same period.
With all that said we believe that EasyJet generally has the
competencies to continue what it did in the recent years and
achieve significant growth and deliver shareholder returns in the
future.
Figure 8: Easy Jet – Revenue and passenger development 2010-2015 Source: easyJet plc. Annual Reports; own diagram
Figure 6: COSS per passenger Source: Companies’ annual reports; own diagram
Figure 7: EasyJet COSS without fuel / passenger Source: Companies’ annual reports; own diagram
EASY JET COMPANY REPORT
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Shareholder structure
EasyJet plc is listed on the London Stock Exchange and is part of Britain’s most
important stock index - the FTSE100. Its major shareholders are the corperations
easyGroup Limited and easyGroup Holdings Limited. Whereas, easyGroup
Limited is a wholly owned subsidiary of easyGroup Holdings Limited itself.
EasyJet founder Sir Stelios Haji-Ioannou thereby holds a controlling interest in
the parent company. As a result of this structure the Haji-Ioannous family holds
33.73% of EasyJet plc’s issued share capital as of 30 September 2015 making
them the company’s biggest shareholder. Apart from that roughly 20% are
currently held by institutional investors such as Invesco LTD (5.15%), Standard
Life Investment (4.96%), Blackrock (4.23%) and Norges Bank (3.38)%.3 While
Invesco, Blackrock and Norges Bank did not change their position recently
Standard Life Investment reduced its investment during 2014 expressing
“concerns about increasing competition” (Standard Life Investment plc, Annual
Report Year ended 28. February, p.173) due to the fact that a lower oil price
allows other usually weaker airlines to survive in the market for a longer period.
Other than that there were no major movements in the composition of EasyJets
biggest shareholders in the recent past.
Airline Industry & Core Markets
Macroeconomic Environment
Worldwide
In 2014 3.3 billion people used air traveling worldwide and this number was
expected to reach 7.3 billion in 2034 according to a 20 year forecast published by
IATA (2014). This would constitute a 4.1% annual growth in demand in every of
the next 20 years. However, IATA (2015) recently updated its forecast
downgrading the expected worldwide annual growth rate to a yearly rate of 3.8%
for the next 20 years.
Yet, passenger growth alone is not a guarantee for a profitable industry.
Especially for the Airline industry where a famous study conducted by IATA
(2010) found that 2% GDP growth is a crucial value as profit margins tend to
become negative when the growth rate falls below that point.
3 As of 01.12.15. Data was taken from Bloomberg.
Figure 9: Shareholder structure Source: Bloomberg, own diagram.
EASY JET COMPANY REPORT
PAGE 10/32
Figure 10: World economic growth and airline profit margins Source: CAPA – Centre for Aviation
Fortunately the GDP forecast published by the World Bank lies significantly
above 2% being 3.3% for 2016 and 3.2% for 2017.
In summary the general outlook for the airline industry worldwide can therefore
be seen at least slightly positively. However, EasyJet is mainly operating in the
short haul4 aviation market in Europe requiring a specific analysis of its core
markets.
Core markets
EasyJet focuses on Western and Northern Europe as these are
the areas where a high demand for traveling and wealthy
national economies in general is expected. When analysing
EasyJet it is therefore especially interesting to look at the GDP
development and passenger outlook of their core markets
being UK, France, Italy, Germany, Portugal Spain and the
Netherlands in particular. In the 20 year forecast already
mentioned above IATA (2015) forecasted the european market
to show an annual growth rate of 2.7%.
In another recent release IATA (2015) published current data
on the development of the european market in particular and
reported that European carriers faced an increased demand of
6.7% in October 2015 compared to the prior year. It is thereby
argued that this is the result of a recovery in the economic
situation of the euro zone highliting the importance of GDP
development for demand in the airline industry.
4 Short haul generally describes a flight below 3 hours.
Figure 11: Easy Jet – Passengers per country (%) Source: EasyJet’s Annual Report 2015.
EASY JET COMPANY REPORT
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The forecast of the further GDP development for EasyJets major markets
published by OECD thereby looks as following.
Figure 12: GDP Growth of EayJet Main Markets
Source: Date from OECD, own diagram.
The figure above illustrates a generally positive GDP outlook for EasyJet’s main
markets allowing for a sustainable growth in the general demand for both
business and leisure travel that reflects in the IATA forecast.
European Airline Industry
Current Situation
In general, the airline industry can be divided into legacy carriers such as
Lufthansa, IAG or KLM-Air France and low-cost carriers such as EasyJet,
RyanAir as well a the low-cost subsidiaries of the legacy carriers Vueling (owned
by IAG), Germanwings (owned by Lufthansa) or Transavia (owned by KLM-Air
France). Altough legacy carriers engage in a different business model than
EasyJet they have to be considered as potential competitors for customers and
need to be taken into account when analysing the airline industry in general as
well as more specfifc comperables later on.
With a low oil price and increasing passenger numbers this year was a good one
for the Euopean Airline Industry. However, not every airline was able to capitalize
on that. While the two big low cost carriers EasyJet and RyanAir reported record
profits of £547 and £657 million for the past financial year continuing the
development of an increasing market share for low cost airlines the story for the
legacy carriers on the other hand is ambiguous
EASY JET COMPANY REPORT
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Figure 13: Europe LCC Share of Total Seats 2002-2014. Source: CAPA – Centre for aviation with data provided by OAG.
IAG with its subsidiariy airlines British Airwaya, Vuelling, Iberia Air an Aer Lingus
thereby seems to be the clear winner among the legacy carriers. Through
restructuring and strong cost-cutting measures the group was able to return to
profit and recently announced that it will pay its first ever dividend. Lufthansa and
KLM-Air France on the other hand were facing problems with labour and
recurrent strikes and are therefore expeced to face yet another year of losses.
This is not really new however as the airline industry in Europe in particular is
histrocally known to be very volatile and to show rather small returns due to
operational difficulties and strong segmentation. This is illustrated by a study
conducted by CAPA (2015) which analysed the operating margings for listed
european airlines providing the following findings.
Figure 14: Operating Margins for Listed European Airlines (% of Revenue) 2013 and 2014
Source: CAPA – Centre for aviation.
EASY JET COMPANY REPORT
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Rank AirlinePassengers
2014
1 Lufthansa 104,6M
2 RyanAir 81,4M
3 Air France-KLM 77,9M
4 IAG 78,4M
5 easyJet 61,4M
6 Turkish Airlines 48,3M
7 Air Berlin 31,5M
8 Aeroflat 31,4M
9 SAS Group 25,7M
10 Norwegian Air 20,7M
Source: Company's annual reports
The comparison of operating margins displayed above illustrates two very
important facts.
Firstlly, it can be seen that in the past the low-cost carriers showed a clear
tendency of significantly stronger operational margins. This suggests that the
legacy carrier business model is generally inferior to the low-cost model in terms
of profitability which will be discussed in more detail later.
Secondly, the average margin seems to be rather low in general and a lot of
companies are dangerously close to zero or below. A fact that is not suprising as
we already discussed the volatility of profits in an industry where a GDP growth
below 2% is already enough to get into trouble. But apart form the fact that the
airline industry is regarded as highly competitive and operating margins are
usually relatively low another reason for low margins in the industry seems to lie
in the specific structure of the industry in Europe in particular.
With a vast abundance of airlines the european market is highly fragmented and
many believe that consolidation in the industry is overdue. This is illustrated in a
recent article from World Finance (2015) where it is argued that Data from OAG
revealed the fact that in Europa 17 airlines compete for customers, whereas
there are only 10 in the US and that Europes six biggest airlines only make up
53% of the local market whereas the two biggest airlines alone share 46% of the
market in the US.
Figure 15: Airline EBIT Margin 2015F vs. Market Concentration by region Source: CAPA – Centre for aviation.
Despite that the only major M&A activity in the European industry in 2015 was
the aquistion of irish airline Aer Lingus by IAG. The reason for this slow
development towards a more consolidated industry is given by govermental
influence both as a company shareholder (TAP, airBaltic, Croatia Air etc.) and
Table 3: Europe’s biggest
Airlines by Passenger numbers
EASY JET COMPANY REPORT
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Month $ per Gallon Change
Oct 2,46 -
Nov 2,30 -6,63%
Dec 1,80 -21,59%
Jan 1,50 -16,94%
Feb 1,75 17,31%
Mar 1,63 -7,18%
Apr 1,70 4,48%
May 1,85 8,64%
Jun 1,73 -6,33%
Jul 1,54 -10,97%
Aug 1,39 -9,92%
Sep 1,39 0,29%
Oct 1,39 -0,14%
Source: indexmundi.com, own diagram
through a very strict regulatory environment regarding company acquistions or
mergers.
However, all of Europes leading legacy carriers have been trying to access the
low-cost segement in the past by aquiring or setting up subsidiaries with the
purpose of providing short-haul traveling at low cost: IAG bought the spanish
airline Vueling in 2013. The Lufthansa group already fully owns Germanwings
and is currently re-developing Eurowings with the aim of creating another
european low-cost airline while KLM-Air France uses its subsidiary Transavia for
the low-cost segment. However, the majority of these subsidiaries have yet to
prove their potential as they still struggle to compete in the cut-throat
environment with the established low-cost carriers RyanAir or EasyJet due to
firece competition and a rigid cost structure that will be analyzed in detail under
“Comperables” below.
Outlook
When looking in the airline industry’s future a very important factor is given by the
price of Jet Fuel as it represents a large portion of the industry’s operational
costs. The price for jet fuel is thereby usually measured in US Dollars and
naturally strongly correlated to the oil price as it is illustrated below.
Figure 16: Jet Fuel and Crude Oil Price ($/barrel) Jan-2007 – Sep-2012 Source: CAPA – Centre for aviation.
In the past year the price of Jet Fuel reached a yearly low at a price of 1.39 $ /
gallon in October representing a decline of almost 43% over the year 2015.5
Despite the fact that Airlines usually largely hedge against jet fuel prices this has
a significant positive impact on the cost structure of the industry although it is
spread out over time.
5 Data taken from indexmundi.com, accessed 01.12.2015.
Table 4: Oil Price Oct-15 – Oct-16
EASY JET COMPANY REPORT
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Date Last Price ($)
Feb 16 36,44
Mar 16 37,37
Apr 16 38,11
May 16 38,82
Jun 16 39,42
Jul 16 39,92
Aug 16 40,47
Dec 16 42,31
Dec 17 46,21
Source: indexmundi.com, own diagram
In order to assess the expectation for the further development of the oil price and
hedging opportunities a look at Crude Oil Futures needs to be taken.
Figure 17: Oil Futures (Last Price)
Source: Data taken from indexmundi.com, own diagram.
From looking at the oil price futures we assume an increasing Oil price over the
next two years. This in turn clearly indicates the increase of the price for jet fuel
as well. However, despite the increasing tendency the level is still rather low and
when the currently applied hedging positions expire the industry will face
favourable conditions in terms of fuel prices
Consequently, IATA forecasts the global airline industry to grow its earnings to
$36 billion in 2016 and thereby reach an operational margin of 8%. Although the
European industry is still far below North America regarding profitability this
development will thereby also reflect in the European industry as the figure below
illustrates.
Figure 18: Global and regional Airline profitability Source: IATA
However, even with this positive short term outlook tougher times might lie
ahead. With the structural problems of the European industry an increasing oil
price would cause old problems to pop up again. Yet, there is some evidence
Table 5: Oil Futures
EASY JET COMPANY REPORT
PAGE 16/32
that the industry structure will be subject to some changes. First of all, the
profitability problems are expected to gradually decrease governmental
involvement in the airline industry as it was for example illustrated in the case of
TAP. Additionally, the European commission recently published its new aviation
strategy setting the goal of a more competitive aviation sector in Europe. The
main steps towards this goal are thereby given by deregulation and liberalization
of the industry. Hence, we expect to see all types of consolidation such as
mergers, acquisitions or partnership in the European industry in the mid- and
long-term.
Taking a look at North America shows what a more consolidated industry could
bring. There, deregulation led to bankruptcies and consolidation reducing the
number of Airlines operating in the market significantly. This highly consolidated
industry resulted in a very profitable one. Due to cost savings through economies
of scale and weaker price competition North America is now by far the most
profitable Airline industry. Due to labour laws and a generally stricter regulation
we will not see an European market consolidated to the same extinct. However, it
is an indicator where the European industry is inevitably developing to in the long
term. A development that will be challenging for low-cost carriers which will face
an increasing number of competitors able to compete with their costs.
Comperables
In addition to an understanding of the market development in general it is crucial
to develop a specific group of peers in order to conduct a competitive analysis.
For this purpose we choose RyanAir, Vueling, Germanwings and Transavia as
the most suitable European peer companies due to the fact that they are low-
cost-carriers and therefore direct competitors. Additionally our comparison will be
extended to Europe’s leading legacy carriers IAG, the Lufthansa Group and KLM-
Air France as well as low-cost carriers from outside Europe whenever suitable in
order to illustrate potential strengths and weaknesses.6
In terms of passenger numbers EasyJet is Europe’s second biggest airline in the
low-cost carrier segment and the fifth biggest airline in Europe general with 64,8
Million passengers in 2014.
Analysing operational measures the first striking fact is that easyJet was able to
achieve a significantly higher load factor7 than its European peer competitors
6 All Data is based on the Financial Year of the respective company, ending at 31.3 for RyanAir, 30.09 for easyJet and 31.12 for all others. 7 Load Factor is computed by Number of Passengers / Number of Seats flown.
Figure 19: Passengers 2014 Source: company’s annual reports, own
diagram.
EASY JET COMPANY REPORT
PAGE 17/32
RyanAir, Vuelling and Transavia.8 Moreover, this finding also holds when the
comparison is extended to European legacy carriers Lufthansa IAG and KLM-Air
France. Hence, it can be said that EasyJet clearly has a major advantage as the
airline is achieving a higher load factor which in turn results in a larger distribution
base per aircraft flown and a potential cost advantage per passenger. Moreover,
in the recently published annual report 2015 easyJet reported an even further
increased load factor of 91,5%.
With that being said the following analysis of operational costs will be based on a
per seat flown basis as we already discussed the different load factors and their
potential effect. As it is very common among the airline industry we thereby
differentiate between COSS without fuel and fuel costs in order to provide an
insightful analysis of the true operational efficiency rather than just fuel price
development. Table 6 below illustrates the COSS without fuel for the year 2012-
2015.9
Table 6: COSS without fuel / seat flown10 Source: Companies’ annual reports, own diagram.
2012 2013 2014 2015
easyjet -32,99 -34,78 -34,31 -33,96
RyanAir -18,91 -19,51 -19,46 -19,29
Lufthansa -133,5 -139,2 -137,5 -
IAG -133,2 -149,2 -149,8 -
Coss without fuel / Seat flown(£)
Low-cost
carrier
Legacy
carrier
On the first sight this illustrates what is obvious, it can be seen that the low-cost
carriers have significantly lower non-fuel operational costs per seat flown than
legacy carriers. In comparison with its biggest competitor however easyJet faces
COSS without fuel almost twice as high as RyanAir. Yet, this might be largely
due to the fact that RyanAir follows a slightly different strategy allowing for
additional cost savings. The airline is not flying from prime airports and rather
uses small airports in solitary regions. However, RyanAirs CEO Michael O’Leary
recenty affirmed that the airline will continue to increae its activity on larger
airports in the future. Consequently it will be a very important challenge for
easyJet in the near future to further enhance operational efficency in order to
prohibit biggest competitor RyanAir to achieve cost leadership even if they
operate from main airports.
Table 4 below illustrates the fuel cost per seat flown for the years 2012-2014.11
8 There was not sufficient information to consider Germanwings in this analysis. 9 All currencies have been converted to British pound using an average currency rate for the year taken from xe.com. 10 Vueling, Germanwings, Transavia and KLM-Air France did not provide sufficent information.
Figure 20: Load Factor LCC Source: company’s annual reports, own
Figure 21: Passengers 2014 Source: company’s annual reports, own
EASY JET COMPANY REPORT
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Table 7: Fuel cost / seat flown12 Source: Companies’ annual reports, own diagram.
2012 2013 2014 2015
easyjet -17,44 -17,38 -17,50 -15,99
RyanAir -14,26 -16,13 -16,57 -14,67
Lufthansa -46,71 -44,90 -41,27 -
IAG -67,50 -51,45 -70,12 -
Jet Blue -32,85 -31,74 -31,14 -
Allegiant Air -29,56 -28,50 -25,77 -
Fuel cost / Seat flown (£)
Low-cost
carrier
Legacy
carrier
Low-cost
carrier USA
What can be seen here is very similar to the COSS without fuel discussed above.
easyJet seems to be significantly more efficent than the legacy carriers and both
American low-cost airlines, but falls slightly short of reaching RyanAir
nevertheless. A more detailed look into easyJets specific fuel cost regarding
recent developments and hedging positions as well as potential risks etc. will be
given later.
When we then look at the developement of the revenues per passengers13 in the
European low-cost segement it can be seen that the fierce price competition did
not allow any significant price hikes in the last years and we believe that this
development will further continue in the next few years putting even more
importance on the ability to achieve low costs in order to grow profits.
Table 8: Revenue per passenger14 Source: Companies’ annual reports, own diagram.
2012 2013 2014 2015
easyjet 66,0 70,0 69,9 68,3
RyanAir 47,9 50,9 49,9 47,3
Vueling 61,9 68,0 64,3 -
Lufthansa 241,6 237,5 229,1 -
IAG 245,9 294,3 300,5 -
KLM-Air France 271,4 269,3 230,8 -
Revenues per Passenger (£)
Low-cost
carrier
Legacy
carrier
Again RyanAir shows a lower level than easyJet and therfore seems to be able to
provide cheaper tickets while Vuelings revenues per passenger are very similiar
to easyJets.
With all that being said it is then interesting to look at the EBITDAL margins. This
provides two main findings. Firsty, as discussed in the industry analysis the low
cost carriers and IAG are ahead of Lufthansa and KLM-Air France. Secondly, the
11All currencies have been converted to British pound using an average currency rate for the year taken from xe.com. 12 Vueling, Germanwings, Transavia and KLM-Air France did not provide sufficent information. 13 All currencies have been converted to British pound using an average currency rate for the year taken from xe.com. 14 Germanwings and Transavia did not provide sufficent information.
Figure 22: LCC EBITDAL Margins Source: company’s annual reports, own
diagram
EASY JET COMPANY REPORT
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analysis reveals that EasyJet is the company with the strongest margin for the
years 2013 and 2014. This finding suggest that despite the fact that easyJet
shows a higher COSS per seat flown it can be seen as a leader in operational
efficieny among its peers due to an oustanding load factor and higher revenues
per passenger. Additionaly it seems that easyJet will be able to maintain this
position as the company very recently published results for the finacial year 2015
and thereby reported a further increased EBITDAL margin of 20% - representing
an increase by 2% from 18% in 2014 and our forecast projects continouingly high
margins for the future as well.
Table 9: EBITDAL Margins Source: Companies’ annual reports, own diagram.
2012 2013 2014 2015
easyjet 14% 17% 18% 20%
RyanAir 16% 15% 13% 18%
Vueling 3% 10% 9% -
Lufthansa 5% 3% 3% -
IAG 0% 14% 7% -
KLM-Air France -1% 0% -1% -
Jet Blue 8% 8% 9% -
Allegiant Air 15% 16% 14% -
EBITDAL Margin
Low-cost
carrier
Legacy
carrier
Low-cost
carrier USA
With all that being said we now arrive at the company’s overall profitability
analysing net profits and we find what has already been indicated in the industry
analysis. Apart from EasyJet and RyanAir European low-cost carriers struggle to
achieve a sustainable profit just like the Legacy carriers owning them where only
IAG earned a profit in two consecutive years.
Forecast
Passenger volume
Figure 23: Net Profits of European Airlines 2012-2014 Source: company’s annual reports, own diagram.
EASY JET COMPANY REPORT
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The basis and one absolutely crucial input four our analysis is given by the
passenger forecast. For the purpose of forecasting passenger numbers a bottom-
up approach was used as we believe that there will be sufficient demand for
EasyJet’s services due to the industry and macroeconomic developments
discussed above. Consequently, the number of passengers will highly depend on
EasyJet’s internal capacities and flight network.
With that being said the first key input four our valuation model is the number of
aircrafts that EasyJet has in its fleet at the end of each financial year. Based on
historical information and the current purchase agreements between EasyJet and
Airbus the past development and forecast thereby looks as follows:
Figure 24: Fleet forecast (million) Source: Author’s valuation model, own diagram.
As already discussed above EasyJet’s load factor is already significantly higher
than the industries average and we consequently believe that it will not be
possible to further increase it with the development towards aircrafts with more
seats so that we forecasted the load factor to remain stable at 91%. All this then
leads to a forecast for the number of seats flown as well as the number of
passengers per year that is illustrated in Figure 12 below.
Figure 25: Passenger forecast (million) Source: Author’s valuation model, own diagram.
EASY JET COMPANY REPORT
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Revenues, EBITDAL, EBIT and Net Profit
As the low-cost airline sector is very competitive in terms of pricing we believe
that the average revenue per passenger or in other words the price for a flight
ticket will not significantly grow in the near future and derived a revenue forecast
where the upward sloping trend is mainly based on passenger growth. For the
FY16 we expect total revenues to reach £5037 Million which is a 7,5% increase
compared to FY15.
Assuming a 2% growth rate reflecting inflation for Airport & Ground, Crew and
Navigation costs and forecasting Maintenance, Selling & Marketing and other
costs on a 13% of sales basis the forecasted COSS without fuel are expected to
reach £2777 Million representing an increase of 9%.
The last remaining COSS driver is fuel. Due to its importance and complexity a
deeper analysis is thereby inevitable. It is thereby important to note that first, the
price of jet fuel is highly correlated with the oil price and second, that EasyJet
applies a hedging policy to reduce short term volatility. Consequently, a crude oil
price forecast constitutes a suitable growth rate estimate for jet fuel in our
analysis. However, this estimation has to be adjusted for two factors. A more
efficient usage related to a modernised fleet and EasyJet’s hedging position that
currently looks as follows.
Figure 26: EasyJet’s Fuel Hedging Source: Annual report 2015.
EASY JET COMPANY REPORT
PAGE 22/32
With this favourable conditions we forecast Fuel Cost to only grow by 6,8% in
FY16 reaching £1280 Million.
Consequently, we believe that EasyJet will be able to remain a strong EBITDAL
margin and forecast EBITDAL for FY16 to increase to £980 Million from £939 for
FY15 representing an EBITDAL margin of 19,5%.
Figure 27: Revenue, COSS and EBITDAL forecast (million £) Source: Author’s valuation model, own diagram.
In terms of the fleet composition EasyJet does not give clear information.
However, we believe that a large share of the new fleet will be bought. This
results in more or less constant leasing costs while a bigger fleet implies a rising
trend in depreciation and large capital expenditures.
With that being said the forecasted NET Profit for FY16 amounts to £565 Million
constituting a 3,3 % growth rate and yet another all-time profit record for the
company.
Figure 28: EBITDAL, EBIT, EBT, Net Profit forecast (million £) Source: Author’s valuation model, own diagram.
EASY JET COMPANY REPORT
PAGE 23/32
Working Capital
Often broadly defined as Current Assets – Current Liabilities forecasting Working
Capital naturally requires these two items to be forecasted in a first step.
In the case of EasyJet Current Liabilities consist of Trade and other Payables,
Current Tax Payable and Maintenance provision, whereas Trade and other
Payables constitutes the lion’s share. Due to that Current Liabilities were jointly
forecasted using average Days of Working Capital (Liabilities) the number of
average days was thereby composed as an average of the last three years
resulting in 100 for FY16 and further.
Regarding Current Assets the story is slightly more complicated. First of all not
all items were classified as operational here as Money Market Deposits and
Excess Cash are considered as negative debt and are therefore excluded from
working capital. The remaining items, namely Trade and other receivables,
Restricted Cash and Operating Cash were forecasted on an aggregated basis
using the same approach as for the liabilities with the number of average days
being 51 in this case. In contrast, operating cash was forecasted using a
minimum ratio of the cash balance.
With all that being said we can then display the forecast for Current Liabilities and
Operational Current Assets and display the Working Capital as the difference in
Figure 22 below:
Figure 29: Working Capital Profit forecast (million £) Source: Author’s valuation model, own diagram.
EASY JET COMPANY REPORT
PAGE 24/32
Capital Expenditures
Due to the very capital intensive industry and the rapid fleet growth of easyJet in
particular capital expenditure is of crucial importance and an accurate forecast
constitutes one of the most important factors of a meaningful valuation. The main
trunk of capital expenditure in EasyJet’s case is thereby naturally given by the
balance sheet item Property, Plant & Equipment. This in turn can mainly be
attributed to aircrafts. Therefore, we decided to forecast the item using the
number of aircrafts which are owned or under financial leasing. Consequently, we
believe that Net Capex will amount to -£569 Million for FY16. A figure that seems
reasonable as we expect easyJet to buy 18 new Airbus A320 in that period
whereas the purchase of 15 new aircrafts caused Net Capex of -£487 in the prior
year.
FCF
With all necessary inputs known the forecasted Free Cash Flows then look as
follows:
Figure 32: Free Cash Flow forecast (million £) Source: Author’s valuation model, own diagram.
Figure 30: Change in NWC Source: Author’s valuation model, own diagram.
Figure 31: Net CapEx Source: Author’s valuation model, own diagram
EASY JET COMPANY REPORT
PAGE 25/32
Valuation
For the valuation process we decided to use a discounted cash flow method
using the wacc as we believe that easy Jets capital structure will stay relatively
stable.
Capital Structure
In FY13 easyJet built up its assets of financial nature Money, Market Deposits
and Excess cash and thereby cut 594 Million of Net Debt leading to a negative
Net Debt for the year. After that company’s Net Debt was only slightly above zero
leading to a Debt to Equity ratio at Market Values of 0,03% and 0,05% for FY14
and FY15. The Airline has ambitious expansion plans and therefore needs a
strong cash balance and deposits as they plan on financing that expansion
mostly without large additional debt. Hence, we believe that the Debt to Equity
ratio will remain more or less constant and very low.
Taking a look at the industry reveals the fact that RyanAir seems to have the
same approach of achieving high flexibility and easy access to new funds by
keeping its Debt-to-Equity ratio low with a current value of 5%. The legacy
carriers on the other hand show very high Debt-to-Equity ratios ranging anywhere
between 30% and 50% while they are currently not able to achieve the ratios
they aim for.
WACC
As an approximation for the market portfolio the MSCI World has been chosen.
Hence, the levered betas of the comparable firms were computed by their
covariance. In a first step we thereby computed a 5-year moving beta for the last
EASY JET COMPANY REPORT
PAGE 26/32
10 years and the associated 95% confidence interval. Intuitively, the large and
worldwide operating legacy-carriers show higher dependence on the overall
market as they are more expensive and additionally provide other services such
as cargo deliveries. It thereby seems that pricing is highly important as RyanAir
shows an even lower beta than easyJet.
Figure 33: 5-year moving average beta and 95% Confidence Interval for 2005-2015
Source: Data from Bloomberg, own diagram.
easyJet 0,51 ; 0,90
Ryan Air 0,25 ; 0,70
Lufthansa 1,04 ; 1,37
IAG 1,24 ; 1,93
Jet Blue 0,30 ; 0,76
Allegiant Air -0,11 ; 0,28
95% Confidence Interval
Un-Levering the betas of the European peer group and re-levering the average
with the average Debt-to-equity ratio of 20,2% computed from the comparable
group then leads to an estimated industry beta of 0.9.
With all this information given we decided to use a beta of 0.7 in order to estimate
EasyJet’s Cost of Equity.
Research suggests a market premium between 4% and 6,5%. Due to the positive
economic outlook we decided to use the upper bound of that range. The risk free
rate is adapted on the US Treasury Bill and was set at 0,4%. Consequently,
EasyJet’s Cost of Equity was estimated at 4,98%.
Due to the fact that the weight of debt in the wacc was found to be extremely
small the Cost of Debt was estimated using a simplistic approach of dividing the
interest by the average Financial Debt for the respective year resulting in a Cost
of Debt of 2,06%.
EASY JET COMPANY REPORT
PAGE 27/32
Consequently EasyJet’s future cash flows have to be discounted by its weighted
average cost of capital of 4,98%.
After the explicitly forecasted periods the terminal value in FY19 was computed
using the perpetuity formula with a free cash flow growth rate g. In the long term
we expect NOPLAT to grow with the economy at a rate of 2%. Additionally, we
believe that 50% of NOPLAT will be needed to invest in order to continue the
companies operations. From this we arrive at a long term growth rate of g=1%.
Due to the challenging environment of the airline industry we thereby believe that
this rather conservative growth rate is appropriate.
Recommendation
With all these inputs EasyJet plc’s Enterprise value was estimated at £7826
Million for the coming FY16. After subtracting Net Debt that leaves an Equity
market value of £7822 Million. Divided by the number of shares outstanding
(397.208.000) we therefore arrived at a FY16 price target of £19,69. As EasyJet’s
shares are currently trading at £17.62 we consequently recommend a Buy
Position.15
Sensitivity Analysis
EasyJet faces the risks of two very important drivers of its free cash flow being
subject to a potentially high volatility. These two drivers are the number of
passengers and the price of jet fuel. Consequently, a comprehensive sensitivity
analysis regarding them was conducted in order to illustrate and measure these
potential risks.
As already discussed above the number of passengers is an absolutely crucial
driver of EasyJet’s success. However, there might be certain risks affecting it.
First of all although our analysis argues otherwise the demand might not be as
high as thought in general. Additionally terror attacks or an internal tragedy such
as the crash of a Germanwings aircraft in 2015 can cause problems. It is not
easy to quantify the passenger decrease Germanwings faced as Lufthansa
strikes in 2015 generally caused reduced traffic and falsify the conclusion but a
decrease in passengers in a reaction to an event like this seems more than likely.
However, it does not take a disaster like that when even just a lower than
expected load factor can adversely affect passenger numbers tremendously.
Therefore we constructed 3 scenarios: Passenger numbers go down 1%, 5% and
15 As of 07.01.2015. Data on shares outstanding and current share price was taken from Bloomberg.
Figure 34: wacc vs. ROIC Source: Author’s valuation model.
EASY JET COMPANY REPORT
PAGE 28/32
10% and illustrated the effect on revenues, net profit and the price target
exemplary for the FY16. We choose these scenarios as our aim is to illustrate
risks and an increased traffic volume would not be insightful as our
recommendation is already at BUY. Interestingly, a 1% reduction in passenger
numbers is enough to change the recommendation to HOLD while 5% even
sends the Price target downhill by more than 68%. As all other things are kept
equal an analysis like that might underestimate the flexibility EasyJet could react
to a development like this up to a certain degree. Yet it is important to note that
the exposure to changes in demand is extremely high with a low-cost business
model that is dependent on high utilisation.
Table 3: Sensitivity Analysis: Passenger volume Source: Author’s valuation model, own diagram.
Scenario
Number of
Passengers
FY16
Revenues FY16
(million £)
Net Profit FY16
(million £)
Price Target
FY16
(£)
Recommendation
Normal73.1
million5037 582 19,69 BUY
1% Passenger
decrease
72.3
million4987 530 17,00 HOLD
Change -0,99% -9,00% -13,68%
5% Passenger
decrease
69.4
million4786 389 6,21 SELL
Change -4,99% -33,09% -68,47%
10% Passenger
decrease
65.8
million4534 214 -7,3 SELL
Change -9,99% -63,19% -136,97%
The second very important factor for EasyJet as for every airline is the price of jet
fuel and the currency risk related to it. EasyJet hereby gives information on
sensitivity regarding their hedging position with additional respect to associated
currency movements as follows:
Table 4: Sensitivity Analysis: Price of jet fuel Source: Based on Table from EasyJet’s Annual Report 2015l, own diagram.
EASY JET COMPANY REPORT
PAGE 29/32
impacts
impacts
impacts
impacts
$10 movement per metric tonne
FY16 EBT by £0.7 million
$0.01 movement in £/$
$0.01 movement in £/$
€0.01 movement in €/CHF
FY16 fuel cost by $3.5 million
FY16 EBT by £1.5 million
FY16 EBT by £0.4 million
Source: Based on Table from easyJet plc results 2015, own diagram
EASY JET COMPANY REPORT
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Appendix
Financial Statements
Income Statement 2012 2013 2014 2015 2016F 2017F 2018F 2019F
Revenues: £ million £ million £ million £ million £ million £ million £ million £ million
Seats 3794 4194 4462 4616 4964 5415 5844 6138
Non-Seats 60 64 65 69 73 79 84 88
Total Revenues 3854 4258 4527 4685 5037 5494 5928 6225
Fuel -1149 -1182 -1251 -1199 -1280 -1417 -1564 -1682
Airports and ground handling -955 -1078 -1107 -1122 -1225 -1350 -1471 -1560
Crew -432 -454 -479 -505 -551 -608 -662 -702
Navigation -280 -294 -307 -313 -345 -373 -398 -414
Maintenance -203 -212 -212 -607 -655 -714 -771 -809
Selling and marketing -104 -101 -103 0 0 0 0 0
Other costs -200 -226 -245 0 0 0 0 0
COSS: -3323 -3547 -3704 -3746 -4057 -4462 -4867 -5169
EBITDAL 531 711 823 939 980 1032 1061 1057
Aircraft dry leasing -95 -102 -124 -114 -114 -114 -114 -114
Depreciation -97 -102 -106 -125 -141 -161 -185 -204
Ammortisation of intangible assets -8 -10 -12 -13 -15 -16 -18 -19
Other 0 0 0 0 0 0 0 0
EBIT 331 497 581 687 710 741 744 719
Interest receivable and other fin. Income 11 5 11 9 6 6 6 6
Interest payable and other fin. Charges -25 -24 -11 -11 -10 -11 -11 -12
EBT 317 478 581 685 706 736 739 714
Tax -62 -80 -131 -138 -141 -147 -148 -143
Net Profit 255 398 450 547 565 589 591 571
Balance Sheet (million £) 2012 2013 2014 2015 2016F 2017F 2018F 2019F
Goodwill and other intangible Assets 456 467 478 492 505 519 534 551
Property, Plant & Equipment 2.395 2.280 2.542 2.877 3.277 3.767 4.149 4.413
Loan Notes 10 7 4 0 0 0 0 0
Other Non-current Assets 86 197 161 136 172 172 172 172
Total Non-current Assets 2.947 2.951 3.185 3.505 3.954 4.458 4.855 5.136
Working Capital (Assets) 732 593 647 651 700 763 824 865
Money Marktet Deposits 238 224 561 289 300 300 300 300
Excess Cash 284 614 0 211 227 248 267 281
Total Current Assets 1.254 1.431 1.208 1.151 1.227 1.311 1.391 1.446
Total Assets 4.201 4.382 4.393 4.656 5.181 5.769 6.246 6.582
Financial Debt 957 679 563 504 531 552 571 585
Net Derivative fin. instruments -44 71 21 297 297 297 297 297
Non-current deferred income 46 68 62 47 47 47 47 47
Maintenance provisions 141 171 147 165 165 165 165 165
Deferred Tax 198 144 186 176 176 176 176 176
Total Non-current Liabilities 1.298 1.133 979 1.189 1.216 1.237 1.256 1.270
Working Capital (Liabilities) 1.109 1.232 1.242 1.218 1.380 1.505 1.624 1.706
Total Current Liabilities 1.109 1.232 1.242 1.218 1.380 1.505 1.624 1.706
Total Liabilities 2.407 2.365 2.221 2.407 2.596 2.742 2.881 2.975
Equity 1.794 2.017 2.172 2.249 2.584 3.027 3.366 3.607
Total Liabilities + Equity 4.201 4.382 4.393 4.656 5.181 5.769 6.246 6.582
EASY JET COMPANY REPORT
PAGE 31/32
Cash Flow statement (million £) 2012 2013 2014 2015 2016F 2017F 2018F 2019F
EBIT 331 497 581 687 710 741 744 719
Notional Income Tax -79 -114 -122 -137 -142 -148 -149 -144
Tax Adjustments 14 30 -9 -1 0 0 0 0
NOPLAT 266 413 450 548 568 593 596 575
Depreciation 97 102 106 125 141 161 185 204
Ammortization 8 10 12 13 15 16 18 19
Gross Free CF 371 525 568 686 724 770 799 799
-Change in NWC -22 289 -54 28 113 62 59 40
-Net CapEx -356 -8 -391 -487 -569 -681 -601 -505
Other -24 -85 1 20 -36 0 0 0
Operating CF -31 721 124 247 233 151 257 334
Non Operating CF 24 -34 48 -3 0 0 0 0
Total Free CF Available to Investors -7 687 172 244 233 151 257 334
EASY JET COMPANY REPORT
PAGE 32/32
Disclosures and Disclaimer
Research Recommendations
Buy Expected total return (including dividends) of more than 15% over a 12-month period.
Hold Expected total return (including dividends) between 0% and 15% over a 12-month period.
Sell Expected negative total return (including dividends) over a 12-month period.
This report was prepared by Moritz Geiger, a student of the NOVA School of Business and Economics, following the Masters in Finance Equity Research – Field Lab Work Project, exclusively for academic purposes. Thus, the author, which is a Masters in Finance student, is the sole responsible for the information and estimates contained herein and for the opinions expressed, which reflect exclusively his/her own personal judgement. This report was supervised by professor Rosário André (registered with Comissão do Mercado de Valores Mobiliários as financial analyst) who revised the valuation methodology and the financial model. All opinions and estimates are subject to change without notice. NOVA SBE or its faculty accepts no responsibility whatsoever for the content of this report nor for any consequences of its use. The information contained herein has been compiled by students from public sources believed to be reliable, but NOVA SBE or the students make no representation that it is accurate or complete, and accept no liability whatsoever for any direct or indirect loss resulting from the use of this report or its content. The author hereby certifies that the views expressed in this report accurately reflect his/her personal opinion about the subject company and its securities. He/she has not received or been promised any direct or indirect compensation for expressing the opinions or recommendation included in this report. The author of this report may have a position, or otherwise be interested, in transactions in securities which are directly or indirectly the subject of this report. NOVA SBE may have received compensation from the subject company during the last 12 months related to its fund raising program. Nevertheless, no compensation eventually received by NOVA SBE is in any way related to or dependent on the opinions expressed in this report. The Nova School of Business and Economics, though registered with Comissão do Mercado de Valores Mobiliários, does not deal for or otherwise offers any investment or intermediation services to market counterparties, private or intermediate customers. This report may not be reproduced, distributed or published without the explicit previous consent of its author, unless when used by NOVA SBE for academic purposes only. At any time, NOVA SBE may decide to suspend this report reproduction or distribution without further notice.
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