As I write on 4 September, the Jet2 (LSE:Jet2) share price is down around 14% on the day. That’s because it published a trading update in the morning and the market didn’t like it very much.
The sharp fall came after Jet2 warned that annual earnings are now expected to land towards the bottom end of market forecasts. Management said that since its last update in July, the trend of customers booking much closer to departure has become even more pronounced, making forward visibility more difficult.
To the end of August, flown package holiday customers rose just 2%, while flight-only passengers grew 17%. Average package holiday pricing is still showing modest growth, with flight-only yields becoming increasingly attractive.
But with much of its summer season and winter capacity still unsold, the group expects earnings before interest and tax (EBIT) for the year to March 2026 to be at the lower end of the £449m-£496m consensus range.
In response to the weaker backdrop, Jet2 has trimmed its planned winter capacity from 5.8m to 5.6m seats. Even so, this remains a 9% increase compared to the previous winter season.
Chief executive Steve Heapy struck a more positive tone, stressing that Jet2’s flexible capacity management and award-winning service provide a strong foundation for long-term growth.
The guidance has effectively wiped out the company’s share price gains for the year, with the late booking pattern continuing to cloud earnings visibility for the industry.
Still a favourite of mine
Warren Buffett says he likes it when his favourite stocks fall in value. It means he can buy more. And that’s what I’m seeing today. I like Jet2, and this falling share price may be an opportunity for me to top up.
With the market cap falling to £2.65bn today, Jet2’s net income is only 1.05 times its enterprise value — that’s the market cap adjusted for adjusted for net cash. The EV-to-EBITDA ratio is also around 0.65. That’s also incredibly cheap when compared to peers, notably IAG around 3.8 times.
Of course, I do appreciate that the company’s huge net cash pile also includes customer deposits. So, it’s not a perfect calculation. But it’s still worth recognising that the company’s balance sheet is incredibly strong. And it’s expected to get stronger throughout the medium term, reaching a net cash position of £2.5bn in 2026.
What’s more, it’s steadily growing its fleet and replacing less efficient aircraft with the Airbus A321 neo. The cost of this fleet overhaul appears to be sustainable given the company’s revenue forecast, and it should make Jet2 one of the largest fleet operators in the UK.
However, like other businesses in the UK, it’s struggling with increasing costs of employment and an uncertain economic backdrop. Last year, it said the Budget would cost the company £25m annually. With potentially more pain to come in November, it’s worth watching.
Despite this, I believe Jet2 shares are cheap and worth considering as an investment. It’s well represented within my portfolio and I wouldn’t be surprised to see it on the FTSE 100 one day. That’s subject to the stock moving to the main market.
