Yahoo Finance EasyJet fails to impress City with £1.2bn fundraising drive
EasyJet is facing fresh turbulence after the City took a dim view of its plans to tap shareholders for £1.2bn following last week’s failed takeover swoop by rival Wizz Air.
The budget airline faces a more protracted recovery from the Covid crisis because of its heavy reliance on the UK market and a sluggish recovery in sales compared with the likes of Ryanair and Wizz, according to Jarrod Castle, an analyst at UBS who downgraded the stock.
Shares crashed 15pc, driven by an increase in the amount of stock in circulation after the rights issue.
Mr Castle said that easyJet’s future remains uncertain as the pandemic eases. The airline is unlikely to use the proceeds of its fundraising to pay down debts of more than £4bn.
EasyJet surprised investors last week by seeking an injection of considerably more money than the £500m some analysts had expected.
The announcement followed the rejection of a takeover bid by Wizz, a low-cost rival that has expanded rapid in recent years with the backing billionaire American investor Bill Franke.
Mr Castle said: “We forecast Ryanair/Wizz achieving pre-Covid-19 traffic recovery ahead of easyJet. Nevertheless, the announced capital raise puts easyJet on firmer footing and likely means less questions around the balance sheet.”
EasyJet is creating new shares and selling them to raise money on the market. This dilutes the value of existing shares in the company. The first step in this process is issuing nil-paid rights, which were released onto the market on Monday and were responsible for most of the company's share price drop.
Andrew Lobbenberg, an analyst at HSBC, forecast that easyJet’s stock would fall to 590p-a-share once investors decided whether or not to take up their rights. EasyJet shareholders are entitled to buy 31 shares at 410p for every 47 that they currently hold.
Unlike Mr Castle, who downgraded easyJet to neutral, Mr Lobbenberg maintained a buy recommendation to his clients.
The HSBC analyst was impressed by easyJet’s plans to invest the proceeds in growing the airline. The Telegraph reported on Monday that the airline is ready to pounce if British Airways fails to ram through sweeping cost cuts to its short-haul operations at Gatwick airport.
Mr Lobbenberg was, however, disappointed with easyJet’s forecast profit margins compared with its peers.
EasyJet’s shares have lagged the likes of Ryanair and Wizz since the onset of the pandemic. Ryanair and Wizz’s shares are well above pre-pandemic prices, whereas easyJet was behind before last week’s announcement.
Robert Boyle, an aviation analyst, provided insight into the difficulties facing easyJet compared with its rivals. Despite cutting costs and streamlining operations under boss Johan Lundgren, easyJet’s load factors - the number of seats it fills on each plane - were well below Ryanair and slightly behind Wizz in the six months to March 2021.
EasyJet lost around €2.3m (£2m) per plane over the winter months, compared with €1.5m and €2.1m for Ryanair and Wizz respectively.
Last week's flurry of announcements followed the completion of a funding review by new finance chief Kenton Jarvis, who joined from Tui in February.
It remains to be seen whether the airline's founder Sir Stelios Haji-Ioannou will participate in the rights issue, having clashed with the board in recent years. Sir Stelios has previously signalled he would not participate in an equity raise.
He and his family owns roughly a quarter of the airline. By not participating in the rights issue, he would be diluted to a level at which he can no longer unilaterally block special resolutions.
