JPMorgan says easyJet suitor Castlelake is 'credible'; highlights stumbling blocks

(Sharecast News) - JPMorgan said in a research note on Monday that Castlelake is "credible" after the US investment firm confirmed it is in the early stages of considering a takeover offer for easyJet, but that no approach had been made.

"Firm and speculated interest in easyJet is not new given the share price underperformance, with several potential avenues for value to be unlocked," the bank said. "However, challenges around current/future ownership may be stumbling blocks.

"In our view, the interest could also put easyJet 'in play' and crystallise interest from other financial or strategic parties, or provide fresh impetus for management to deliver shareholder value."

It said Castlelake is credible as it has a history in the European airline sector and a specialism in asset-based investing, including aviation.

It also pointed to easyJet's underperformance, with the shares down 22% year to date due to the impact of the Middle East conflict but said easyJet has also materially underperformed Ryanair over the last five years, with subdued margin performance, no cash returns story, and question marks over strategy.

"EasyJet has several attractive features for an alternative owner, including its current/future fleet assets and slots at constrained primary airports," JPM said, adding that a financial break-up and/or network rationalisation are feasible.

JPM said the book value of easyJet's current aircraft is worth around £5bn. "We estimate a tangible net asset value of circa 450p per share for Sep-27E which is circa 13% higher than the last share price," it said.

"However, this does not include the market value of current aircraft, future Airbus orderbook, or landing slots, which could potentially be monetised."

JPM said it believes that easyJet and minority shareholders would at least consider a deal at the right price. However, it also pointed out that ownership challenges may arise. It noted that founder Stelios owns around 15% of the share capital, and is paid annual royalties for brand rights which are financially lucrative.

"Challenges may also come in the form of EU operating licenses given Castlelake is a US firm," it said.

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