FT says BUY: Jet2 (JET2)12 Jul 2025 11:38
BUY: Jet2 (JET2)
The travel group’s shares have slipped by 8 per cent as a 13 per cent dividend increase and 18 per cent more passengers fail to impress, writes Michael Fahy.
Investors remain nervous about the outlook for Jet2, despite the company continuing to deliver on its targets.
Full-year earnings were in line with forecasts, with the strong sales underpinned by a 13 per cent increase in capacity over the past 12 months, following the opening of new bases at London Luton and Bournemouth. The dividend was increased by 13 per cent, and ongoing share buybacks meant earnings per share came in ahead of analysts’ expectations.
Trading for this year’s peak summer period also remains in line, even with capacity increasing by a further 8 per cent. But the shares still fell by 8 per cent.
One potential area of concern is the fact that some passengers — particularly those on flight-only deals — are leaving bookings until the last minute. This translated into a slightly lower ticket yield per passenger, down 2 per cent year on year to £118.81. Yet the overall number of flight-only passengers increased by 18 per cent to 6.6mn, and the number of package holiday customers (who paid 5 per cent more for their holidays year on year) grew by 8 per cent to just under 6.6mn.
The other concern is whether the growth it has enjoyed in recent years can be maintained — especially given the amount of planes it has on order. It firmed up an order for 36 more Airbus A321 neo aircraft in June last year, meaning it is now committed to taking delivery of 146 owned and nine leased aircraft over the next decade — all of which need to be both filled and paid for.
Admittedly, this is a big step-up from the 127 aircraft flown last summer, and it comes with some sizeable capex commitments — of about £1bn a year from 2027 onwards. But there will also be retirements of older, less efficient aircraft along the way, meaning annual capacity growth will only be about 5 per cent, based on management forecasts, and even then there is a degree of flexibility in terms of timing aircraft deliveries.
Besides, a solid balance sheet suggests these can easily be funded through earnings. Last year, it spent just shy of £400mn on capex as 14 planes were delivered and, even after factoring in a repayment of £653mn of convertible bonds, it still ended the period with positive net cash.
As such, Jet2’s current valuation of eight times FactSet consensus earnings still looks too cheap to us, given its recent performance.
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