Kepler downgrades EasyJet, slashes price target

(Sharecast News) - Kepler Cheuvreux downgraded its rating on EasyJet shares to 'reduce' from 'hold' on Tuesday, slashing the price target to 820p from 1,200p as it cut its FY2020 estimates and suggested the airline could be an acquisition target.
Kepler pointed to less capacity growth and uncertainty on demand, as it noted data from Diio, which showed that Easyjet's seat capacity will only rise 2.3% year-over-year in the first quarter of 2020. As a result, it revised its capacity growth expectations from +5% to only +3% for 2020 as a whole.

"EasyJet's main market is the UK, where demand might be impacted by Brexit in FY 2020E; at this stage we keep seat unit revenues flat YOY for FY 2020E, but we see more risks to this assumption.

"From discussions with the company, we understand that due to Brexit, the FY 2020E outlook will only be published along with full-year results in mid-November (rather than at the trading update at the beginning of October)."

Based on the performance of EZJ so far this year and its guidance, Kepler adjusted its pre-tax profit estimate for 2019 to £446m, which is slightly above EasyJet's guidance of between £400m and £440m and 6% higher than Reuters consensus. Kepler's new assumptions for FY 2020 result in a pre-tax profit decline of more than 20% to £350m, which is 24% below Reuters consensus.

"While we think EasyJet could be an acquisition target once the consequences of Brexit and EasyJet's contingency plans have been tested, until then we believe the stock will trade based on the company's profitability."

At 1135 BST, the shares were down 3.7% at 919p.