Broker Numis has upgraded its rating on easyJet PLC (LON:EZJ) to ‘hold’ from ‘reduce’ after the budget airline's favourable first-quarter revenue performance.
Revenue in the first quarter rose 14.4% to £1.14bn compared to the same period a year ago, compared to Numis forecasts of £1.11bn.
READ: easyJet delivers strong quarter with revenue growth and purchase of Air Berlin assets
“This was driven by a beat on passengers flown (+8% reported versus Numis estimate of +6.1%) and +6.6% revenue per seat (RPS) at constant currency, significantly ahead of guidance of 'low to mid-single digits', and our forecast of +2.4%,” Numis said.
“RPS at constant currency in the second quarter is expected to increase by ‘mid to high single digits’, significantly above our prior expectations of +3.6% and its prior guidance of ‘low to mid-single digits’.”
As a result, Numis has raised its RPS expectations to 6.9% growth from a previous estimate of 2.9% for the first half and to a 1.1% gain from a 0.5% fall for the full year.
It also upgraded its earnings per share estimates to 101p from 85p for 2018 and to 120p from 98p for 2019.
EasyJet's revenues to receive boost from collapse of rivals
The higher RPS expectations are supported by the demise of its competitors, including Air Berlin and Monarch, the broker suggested.
“The revision in RPS guidance has been driven by greater visibility on competitor capacity growth in 1H18 in its markets, which has reduced vs its prior expectations (+3.5% vs +4.2% expected in Nov17) and increased short-term yield visibility on its own capacity given its earlier release and consequential higher forward bookings (2Q18 forward bookings +5 percentage points year-on-year),” it said.
Numis noted that easyJet has repeated its previous guidance for a headline loss before tax from the acquisition of part of insolvent Air Berlin's operations at Berlin Tegel of about £60mln with exception costs of about£100mln in 2018.
The deal is expected to be earnings accretive and profitably from fiscal year 2019.
Shares were little changed at 1,673 in morning trading.