Investors in easyJet (LSE: EZJ) could be forgiven for wondering why the shares dived almost 10% when it released its interim results on Tuesday. The market reacted badly, despite the airline posting a swing into profit before tax of £7 million, up from a £53 million loss at the interim stage in 2014.
I’ll be taking a look at whether investors should take a closer look at this quality operator, or look further down the ladder at Dart Group (LSE: DTG), a smaller company currently flying under most investors’ radar.
Let’s take a look at how these two potential investments stack up…
Boasting a market cap over £6.5 billion, this is a sizeable FTSE 100 company. Operating across the UK and Europe, it operates approximately 600 routes across 30 countries, and has a fleet of approximately 200 Airbus aircraft.
The results were not well received as the market fretted to the potential hit from the recent French strikes, and the fallout from the tragic German Wings crash. In addition, oil has been rising recently, bringing diminishing benefits. Currency moves were also unhelpful.
It is true that these are factors that impact on the results and, as we saw in the aftermath, the shares are rather volatile for a FTSE 100 company.
Personally, I tend to try and look past factors that the company can do little to avoid and look for the underlying performance. On this front, revenue grew by 3.8% to £1,767 million, passenger numbers were up by 4.4% to 28.9 million and the load factor grew to 89.7%
The company isn’t standing still, either. CEO Carolyn McCall reckons that easyJet lean can make £30-40 million of sustainable savings per annum over the next five years – I like to see this type of focus on costs.
Turning to valuation, the shares trade around 13 times forward earnings and are predicted to yield around 3.5% — not particularly expensive for a company that continues to grow, in my view.
For those new to the company, Dart Group is a leisure airline, package holidays and distribution and logistics company specialising in the operation of scheduled and charter flights by Jet2.com to leisure destinations throughout Europe; the provision of ATOL protected package holidays by its tour operator Jet2holidays and the distribution of fresh produce, temperature-controlled, and ambient products to supermarkets and wholesale markets throughout the United Kingdom under the brand of Fowler Welch.
The shares have more than doubled since the announcement of an uncertain outlook in the preliminary results announcement in June last year, with the chairman saying:
“In relation to the current financial year, we are finding demand for leisure travel, this summer, to the markets we serve, less buoyant than we would have hoped for and market pricing weak. This may be due to the weather, the World Cup, or because the financial recovery hasn’t yet taken hold in our home territory, the North of the UK.
“Unfortunately, therefore, in view of the current visibility we have of our remaining summer 2014 forward bookings, we now expect the current year operating profit outturn to be lower than previous market expectations.”
Over the following months, the shares began to recover as the company seemed to become more confident about its results. On 13th March this year the shares spiked a further 18%, as the company upgraded its full-year profits forecast. The shares now trade on a forward multiple of 14 times earnings and yield under 1% — so not of interest to income hunters.
However, the management continue to invest in the business, giving the potential for further upgrades going forward.
What’s My Take?
As can be seen from the chart below, over the last three years both of these companies have trounced the FTSE 100, interestingly, Dart Group shares have beaten easyJet shares by some margin, too.
Personally I currently prefer easyJet, but I shall be keeping a closer eye on Dart Group as it develops its business, with a view to buying following another misstep.