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Liberum ups target for easyJet on long-term fundamentals but cautions on short-term uncertainty

In a note to clients, the broker said unit revenues were under pressure in the winter against “tough comparatives flattered by Easter timing and the demise of Air Berlin and Monarch”

Analysts at City broker Liberum have upped their target price for budget airline easyJet PLC (LON:EZJ) to 1,350p from 1,250p after recent weakness in the share price provided a more attractive valuation, however, they cautioned on short-term instability for the carrier.

In a note to clients, the broker said unit revenues for the FTSE 100 group were under pressure in the winter against “tough comparatives flattered by Easter timing and the demise of Air Berlin and Monarch”.

READ: easyJet profits soar as it benefits from rivals' woes but shares fall on concerns about costs

“Summer remains the key to profitability, but while forward bookings are stronger, revenue visibility remains limited”, they added,

However, Liberum said a recent fall in the price of fuel, which accounts for around 25% of easyJet’s cost base, meant it would raise estimates, although they added that they assumed “a less favourable revenue environment as capacity from weaker competitors is likely to persist to a greater extent as they also benefit from the relief on fuel costs”.

Despite the short-term concerns, analysts said they still considered easyJet “amongst the long-term winners in the European airline industry”.

“It has a well-developed network focussed on slot-constrained primary airports in attractive cities. These offer strong demand for air travel for diverse purposes, protected by barriers to entry and competing predominantly against legacy airlines with less efficient cost bases. The recent moderation in fuel prices, if sustained, provides some relief for weaker competitors, but ultimately has no impact on easyJet's strategic advantages.”

The airline reported a 41.1% jump in profits in the year to 30 September last week, as well as hiking its full-year dividend by 43% as flight cancellations from competitor Ryanair Holdings PLC (LON:RYA) and the bankruptcies of Air Berlin and Monarch drove passengers into its aircraft.

Total revenue increased 16.8% to £5.9bn with revenue per seat up 6.4% to £61.94 as passenger numbers gained 10.2% to 88.5mln.

In lunchtime trading Tuesday, easyJet shares were down 1.2% at 1,222.5p.

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