The Jet2 (LSE:JET2) share price took a surprising tumble Wednesday (9 July) despite reporting strong full-year results. At first glance, the numbers looked impressive. Revenue and earnings both rose ahead of forecast, and the company announced a big dividend and share buyback.
But investors quickly focused on some warning signs beneath the surface.
Some analysts have noted that the business is facing rising costs from inflation, the budget, a growing fleet, and new airport bases opening. However, we knew about all these things before the results, and as such they should have been priced in.
However, seemingly, one key concern is the late booking pattern. More holidaymakers are waiting until closer to their departure dates to book flights and holidays. This makes it harder for Jet2 to plan ahead, manage capacity, and set prices confidently.
Late bookings can force the airline to offer last-minute discounts to fill seats, which puts pressure on profit margins. In fact, taking a look at the Jet2 website this morning, I was struck by how low the fares were. That could be indicative of the late booking pattern.
Valuation remains attractive
Jet2 has just announced profit after tax of £446m and that it now has a net cash position of £2bn This means that the company’s trading at around 5.5 times net income (profit after tax is essentially the same thing) when adjusted for cash.
However, it’s worth noting that a chunk of this cash comes from customer deposits for future holidays. So not all of it is available for the company to spend freely. Still, Jet2’s balance sheet looks really strong, especially compared to many rivals in the travel sector. This financial strength gives Jet2 flexibility and confidence as it faces a market where more customers are booking late and the outlook is less predictable.
And while it’s not as diversified in its offer as IAG for example, Jet2 stands out in the sector as being particularly resilient. That’s despite having a relatively thin margin and because of this incredibly strong balance sheet.
Looking forward
Looking forward, analysts see the company’s net cash reserves growing to £2.4bn in 2026 and then £2.7bn in 2027. Net income meanwhile, is also expanding.
Using the enterprise value-to-EBITDA metric, which is net-cash adjusted, Jet2’s valuation falls from 2.3 times today to 1.3 times in 2027. In the meantime, IAG’s trading at 3.7 times and falling to 2.9 times. I think this is indicative of the value that Jet2 continues to offer even after surging since April.
My concerns? Well, late booking patterns are something we all need to keep an eye on. Likewise, it’s listed on the AIM (Alternative Investment Market) and this typically means it receives less attention than its FTSE 100 peers.
As one of my largest holdings, I’m not buying more. However, I certainly believe it’s still worthy of broader consideration.
