The difficulties of the pandemic are in the rear-view mirror for easyJet (LSE: EZJ) and its share price. The airline and package holiday company delivered a pleasing set of half-year results today (16 May) with a positive outlook statement.
Balance sheet strength
For me, one of the highlights is the net cash position of £146m that was on the balance sheet on 31 March. That’s up from net debt of £485m on 31 December 2023.
There’s no getting around the fact that the airline and holiday sectors are among the most cyclical in existence. That means companies like easyJet are often battered by economic events and changes.
That’s one of the biggest risks for shareholders here. But companies can offset some of the worst effects by making hay while the sun shines. In other words, when trading’s good and the cash is rolling in, they can pay off debts and build up their cash reserves.
A strategy like that can help cyclical businesses survive the next — and inevitable — downturn in their industries.
That’s exactly what easyJet appears to be doing. The company said the strength of the balance sheet will help to support “future fleet growth, up-gauging and shareholder returns”.
As I type, the share price is down around 7% today – that’s a common reaction when company’s release their results. However, there are plenty of positives to take away from the interims, and investors with less-twitchy fingers may find opportunity here.
Maybe the headline loss before tax of £350m spooked the market. But the company did better this year than in 2023 at the halfway stage. Winter losses are normal for the airline, and the profitable trading arrives in the summer months.
easyJet’s emerging growth baby
The airline business actually lost £381m in the first six month of the company’s trading year. But that was offset by a profit of £31m from the holidays business. Both figures are better than last year’s when the airline lost £411m and the holidays business made £10m to offset it.
Those figures are encouraging — reduced losses from the airline and rapid growth in the holidays business. If the firm can keep leveraging its trusted brand to further build the holidays business, the division could start to swing the dial with the overall growth figures.
Chief executive Johan Lundgren said the company’s focus on targeted growth and productivity delivered the reduction in winter losses.
Expansion of the network continues. The firm’s newest bases at Alicante and Birmingham “are achieving passenger numbers well above the network average”. Meanwhile, the directors announced a 10th UK base from next March at London Southend.
Lundgren said the move continues the growth of the leisure network in the UK where the holidays business “plays an increasingly important role”. It seems the firm is serious about nurturing its exciting new growth business.
Looking ahead, Lundgren expects strong full-year earnings growth overall. City analysts have pencilled in a rise of almost 67% with earnings recovery forecast to continue next year.
Despite the recent weakness in the share price, I think easyJet’s worth further consideration for a diversified portfolio now.
