Introduction To EasyJet Plc - Free Essay Example

EasyJet is a low-fare airline which was established in 1995 by a Greek businessman Stelios Haji-Ioannou. The company has a big growth from its original bases in Lutton, from where easyjet operated only two routes to Edinburgh, and Glasgow. Nowadays it is giving its services by 171 airplanes on more over 100 destinations through all over the world including Europe, North Africa and even the Middle East. Its official company name is easyJet Airline Company Limited. Only in the last year easyJet has carried about 44.6 millions of passengers, which was a 2nd result just behind the Ryanair. It seems for the company, that its revenue growth considerably increased over a past few years. It employs 4,859 thousands of people, from which many of them are taking care of a companys 165 airplanes. Easyjets major markets which are really strong are held in London, Milan, Malpensa, Geneva and Paris from where they have leaded the company to successful conquer in European transporting industry. In June of 2007 the company has introduced plans for building their own airliner Ecojet. Unfortunately, from that period of time company didnt release any new information yet. As easyjets products are only services, there are only three of them. The first one is of course booking which a customer can do by a phone or internet where the 2nd option is much cheaper to reduce call centre costs. The second service is cabin and onboard services, which have environmental background (some flights provide a film), and either hospitality where the customer has an option to buy a meal for himself. On December 14th 2004, Easyjet and Holitopia together opened EasyJetHotels which are online booking accommodation through the whole world. 2. Key Financial Results Current Year (2008) Previous Year (2007) % Movement Revenue pound; million 2,362.8 1,797.2 +31,5 Operating profit / loss pound; million 91 172 -47 Capital employed pound; million 2,186.0 1,895.1 +15,3 Total assets pound; million 3,095.8 2,516.4 +23 Net cash generated / used in operating activities pound; million 296,2 270,8 +10,9 Number of employees pound; thousands 6,375 5,493 +16 Earnings per share pound; pence 19,8 36,6 -45,9 Final proposed dividend per share 0 0 0 Year end share price 3,15 6,10 -48 Year end market capitalization pound; million 332,955 639,280 -47,9 Current Year (2008) Previous Year (2007) % Movement Gross profit margin (%) 5 11 -54 Operating expenses (%) 89 83 +7,22 Current ratio pound; million 700,2 740,7 -5,5 Gearing ratio (%) 28,7 20,4 +40,7 Debt ratio (%) 59 54 +8,72 3. Financial Ratios 4. Price / Earnings Share ratio (Current and Sector Average) P/E Ratio: Share Price Æ’ÂÂ   pound; 3,99 = 21 times EPS pound; 0,19 Share Price: P/E Ratio x Earnings Per Share Current Share Price: 21 x 19 p = 399 pence Share Price if sector average were applied: 11.45 x 19 p = 217,55 pence As we can see from the above, the current P/E Ratio is 21 times, while the sectors average is 11,45 what makes the sectors average much smaller ratio. We can see that if we would inject the sectors average P/E Ratio share price of the EasyJet company would have cost less. 5. Easyjets share price over the last year From the EasyJets share price graph which shows any core movements, we can actually outline three of them. The first noticeable movement was a fall down by 4,1 % of EasyJets share prices on May 14th 2009, and its big gain on the next day by 3,4 %. On that day all of the big European air carriers like Ryanair, British Airways, Air France-KLM and either Lufthansa has suffered big losses. EasyJets share price has fallen down to 270,25 pence per share from 283,75 pence. The main reason which caused this movement were the oil prices that remained stubbornly high. Source: https://www.centreforaviation.com/news/share-market/2009/05/14/ryanair-easyjet-british-airways-air-france-klm-and-lufthansa-fall-heavilyshare-wrap/page1 The second movement is the one which has caused a fall down from 335 pence for share on 29th of January 2009 to 312,75 and over the whole period to 5th of February to 294 pence. The main reason of this fall was caused by Andy Harrison EasyJets Chief of Executive Officer who had offloaded half his stake in the carrier, raising approximately GBP1.3 million. The company itself said that the sale was made of because of their CEOs divorce. Source: https://www.centreforaviation.com/news/share-market/2009/02/02/british-airways-catches-a-case-of-stelioses-easyjet-share-fallout-continues/page1 The third and the biggest movement which was a raise in EasyJets share price was on 21st of November 2008 from its fall, a week earlier when founder of the company Sir Stelios Haji-loannou upgraded his public attack on the carriers expansion planning. The raise was by 10,7 %, mainly because of the investors who were optimistic that the company should do well now. Source: https://www.centreforaviation.com/news/share-market/2008/11/24/easyjet-surges-and-vueling-suffers-europe-airline-share-prices/page1 6. The companys analysis performance This report will describe EasyJets overall performance over the last trading period during the year ending 30th of September 2008. The aim of this report is also to show a prospects of the company, and advise whenever is good or bad choice to invest in it. We will have to calculate the financial ratios which measure the financial structure of the company and show how it relates to the trading activities(Holmes;2005:page no. 216). EasyJet at a glance Revenue up to 2,363 million (+31%) Cash flow from operations to 292 million (+12%) Gearing up to 28,7 % (+8.3 pp) Seats flown to 51.9 million (+17%) Europes No. 1 in air network (www.easyjet.com) Over 100 airports served Financial Ratio analysis Stock Market Indicators: Stock market indicators are very significant to make a decision to either buy or sell a shares of the specific company. In the UK the market place for all companies is London Stock Exchange. EasyJet company is based in FTSE 250 index which is a complex of the companies ranked from 101 to 350. Above ranking is based on a companys market capitalization calculated by multiplying amount of the ordinary shares by the share price: Market capitalization: 105,7 x 3,15 = 332,955 million pounds EPS Ratio Basic earnings per share ratio is the one of investment ratios. Although EPS has decreased by 45,9 % we need to understand that this is mainly because of the shares price change. The Price/Earnings ratio of the EasyJet indicates is a pretty good investment choice. Price/Earnings Ratio: Market Price per share Æ’ÂÂ   302,302 = 15,22 times EPS 19,8 The ratio of 15.22 means that if we buy the shares for pound;100, then 15.22 years of current earnings of 6.57 pence per share are being bought. This also confirms that stock exchange have a trust in the company. The other two investment ratios which are dividend yield, and dividend payout are both equal to zero since the company has never declared to pay, or never paid out cash dividends for their ordinary shares. They also admit in their annual report that they do not plan to do so. Profitability Profitability ratios will help to highlight EasyJets ability to generate earnings compared with its expenses. The first ratio that is essential is Gross profit margin which has decreased in 2008 to 5 % from 11 % in 2007. As we can see EasyJet has increased its revenue, but the gross profit margin decreased. That situation can only means that the company has aroused the fares, which can be the reason of the companys many competitors. Operating expenses have increased from 83 % to 89 %. This indicator shows that the investors have less opportunity to have a bigger profit this year compared to the previous one. ROCE: Profit before interest and tax Æ’ÂÂ   123 = 5,6 % Capital employed 2,186 The ROCE ratio (return on capital employed) has decreased by 44 % from 10 % to 5,6 %. It is not a really significant ratio, but a noticeable decrease in it confirms that the company uses more assets to generate more sales. Short-Term Solvency The main two indicators for short-term solvency are two ratios which are acid test ratio and current ratio. Acid test ratio is really helpful to provide information if the company has a proper amount of short-time assets to cover short-time liabilities without selling any goods, or inventory. Acid test ratio: Cash + accounts receivable + Short time investments Æ’ÂÂ   1,569,3 = 1,72 times Current liabilities 909,8 Above equations confirm that EasyJet is a safe company, that could manage their business in extreme situations. Current ratio is used to give an idea if the company could pay its short-time liabilities with its short-time assets. It can also show the results of companys operating cycle or faculty to turn its product into cash. Current ratio: Current assets Æ’ÂÂ   1,415 = 1,55 times Current liabilities 909,8 Current ratio is similar to the acid test ratio but it doesnt include any inventory in it. For EasyJet the result of 1,55 times are good news, for every pound in current liabilities there is pound;1,55 in current assets. Long-Term Solvency Long-Term solvency ratios helps to measure a companys capacity to get a long-term obligations. These ratios are gearing ratio, interest cover and debt ratio. Gearing has increased to 28,7 % from 20,4 % which means the company is considered to be more risky according to previous year. By Debt ratio we can see our businesss long-term solvency. It shows how much your leverage your company posses. Debt ratio: Total liabilities Æ’ÂÂ   1817,6 = 0,58 Total Assets 3095,8 The Debt ratio of 0,58 confirms that a company has more assets than liabilities. EasyJets gearing ratio is average. There is a debt capacity that remains unused. If the Debt ratio is less than one, it means that company could have some more borrowings. In EasyJets case, that could be either some new aircrafts or opening new lines. Conclusion EasyJet is a company, with a great financial strength like low gearing and big cash holdings that equals pound;863 million. Their total revenue went up by 31,5 % which means that the company has a constant growth. The passenger numbers has increased by 17.3 % to 43.7 million. That means that more people choose these airlines. The gearing ratio which is low, confirms that the company still wants to expand, which leads to opening new routes and growing their fleet. Long-term solvency ratios showed that EasyJet has more assets than liabilities. This leads the managers to utilize the total debt capacity. On the other hand short-term solvency ratios, shows that the company has enough of current assets to fully cover their obligations to creditors. Although Gross profit margin and ROCE of profitability ratios have decreased, they show that the company tried to generate more sales from its assets. I think that EasyJet has a lot of indicators that show a positive prospects of the company. After reviewing the companys annual report I would definitely try to invest some money in above company and buy some shares.