Analysts at RBC cut rating for low cost carrier on disappointing summer With Greece moving closer to default after weekend talks collapsed in double quick time, it is no surprise that markets are in gloomy mood at the start of the week.Airlines in particular are under pressure, both on the knock on effect on business from the eurozone crisis and news that South Korea had reported five new cases of Middle East respiratory syndrome, bringing the total to 150.Our positive outlook for easyJet’s summer has proved incorrect (but second half earnings before interest and tax margin are still set to be above 22%) though the shares remain a consensus buy. We now disagree, cut 2015-2016 earnings per share by 10%-13%, and rating to underperform. We project second half profits behind 2014. As summer is key, we see few positive catalysts until mid-2016 while easyJet faces a winter squeeze.Strikes are common in France but disruption cost for the third quarter surprised us compared to peers (six times Ryanair’s €5m-€6m). Deteriorating on time performance over the first half of 2015 (down every month) also concerns us. Poor time keeping discourages business travellers and repeat purchases when (increasing) alternatives exist.The incoming chief executive’s need to improve capital ratios leads us to halve our dividend per share forecast as well as move from modest loan growth to shrinkage. Our 2015-2017 estimated earnings per share estimates are 17% below the consensus. Continue reading...
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