Why I Would Buy easyJet plc But Sell Fenner plc And Afren Plc

Today I am running the rule over three of the movers and shakers in Thursday business.


Shares in budget airline easyJet (LSE: EZJ) have enjoyed a soaring start to the day and are currently trading 3.8% higher. Investor appetite has remained bubbly following this week’s trading update, which showed passenger numbers rise 4.1% to 14.9 million, a result that is expected to help first-half losses narrow to between £10m and £30m from £53m last year.

City analysts expect the low-cost carrier to follow the solid 13% earnings improvement posted during the 12 months ending September 2015, with a backdrop of falling oil prices and surging customer numbers driving growth.

Indeed, easyJet is forecasted to see earnings rise 12% this year, resulting in a P/E ratio to just 13.4 times prospective earnings, and a further 13% increase in fiscal 2017 drives the multiple to just 11.9 times — any reading below 15 times is widely considered excellent value. With the firm witnessing surging demand amongst business travellers as well as holidaymakers, and extending the number of routes it operates, I believe easyJet is a terrific long-term growth play.


Conveyor belt builder Fenner (LSE: FENR) has seen earnings tank in recent years as enduring price weakness across commodity sectors has weighed. And stock prices are currently down 7.1% in Thursday trade, reflecting fears of worsening conditions in its key markets — the company warned this month that full-year earnings are likely to fall below previous guidance as oil prices slide.

The number crunchers expect Fenner to punch a third consecutive heavy, double-digit earnings decline in the year concluding August 2015, and a 17% decline is currently pencilled in. A meagre 2% rebound is anticipated for fiscal 2016 but, given accelerating project scalebacks across the mining and oil industries, predictions of any sort of recovery remain shaky at best in my opinion.

The industrial engineer trades just above the bargain benchmark of 10 times for this period, with readings of 10.5 times and 10.4 times for 2015 and 2016 correspondingly. But I believe that these levels reflect the long slog facing the firm rather than represent a terrific buying opportunity.


Quite why anyone would plough their cash into fossil fuel explorer Afren (LSE: AFR) is beyond me, I’m afraid. Shares in the company nosedived 72% in Wednesday trade and are currently 4.3% lower today, after the company announced a severe funding crisis and immediate need for a mammoth £200m cash injection to keep going.

Afren is vast emerging as a bottomless pit for investors, with shares now worth just 1/20th of the value recorded just a year ago. Like the rest of the oil sector, Afren has been battered by a relentless erosion in the oil price over the past six months. But the departure of several board members last summer over “unauthorised payments”, including chief executive Osman Shahenshah, as well as massive downgrades to resources at its Kurdistani assets, have also smacked investor appetite.

Industry rival Seplat Petroleum Development Co has until the end of the week to firm up its interest in the business and make a formal takeover offer. But regardless of this outcome, or indeed whether Afren manages to secure the much-needed finance to keep the wolves from the door, I believe that the business remains a basket case which investors should stay well clear of.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Afren. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.