Berenberg analysts trimmed their target price for shares of EasyJet from 1,000.0p to 930.0p and kept their recommendation at ‘hold’, arguing that the shares were “reasonably” priced given the risk of a cash call that could materially dilute investors.
Furthermore, visibility on a recovery demand was “low” with the Delta variant of Covid-19 posing a threat to the reopening trajectory and timeline.
Uncertainty around the carrier’s capital structure centred on its leverage, which stood at approximately twice the broker’s estimates for EasyJet’s operating profits in FY 2023.
Its cost of gross debt meanwhile was at £4.4bn, which Berenberg noted was twice rival Ryanair’s, adding to an already large fixed cost base.
Hence, they expected management would de-lever via an equity raise, possibly making the most of share price strength if late-summer demand improved.
Raising £500m would reduce leverage to 1.5 times and dilute equity holders by 14% at the current share price.
In turn, cutting leverage to that level would facilitate refinancing EasyJet’s £300m Covid-19 facility due in November, especially should credit markets tighten, the analysts said.
On the company’s topline, Berenberg noted the fact that EasyJet was dependant on a close-in booking curve because of the uncertainty around Covid-19 and restrictions.
As an aside, recent data pointed to a sequential weakening in fare prices, they added.
All told, they remained “cautious” on the company’s capacity and passengers in the fourth quarter, modelling levels of 55% and 49%, respectively, of those seen in 2019.
EasyJet had been guiding towards capacity at up to 60% of 2019’s level.
