Berenberg cuts target price on EasyJet after larger-than-expected equity raise
Analysts at Berenberg cut their target price on low-cost carrier EasyJet from 930.0p to 720.0p on Monday after the group's larger than expected equity raise.
EasyJet announced a £1.23bn rights issue on Thursday, roughly £500.0m larger than initially anticipated by the market and the cause of a roughly 40% dilution.
However, the German bank did acknowledge that the larger amount removed "a key overhang" for the company and that it now expects the new equity to lower leverage to 0.9x for 2023 - 1x lower than its prior view.
"Shares are now trading on a price-to-earnings ratio of 11.2x (circa 7% ahead of TERP) post-money, which we do not think is particularly attractive given the challenging operating environment," said the analysts.
Berenberg, which reiterated its 'hold' rating on the stock, also noted that EasyJet's management indicated that they remained open to merger and acquisition talks despite declining a recent takeover offer, widely reported to be from Wizz Air, because the bid was "highly conditional" and "significantly undervalued" the firm.
"Although we do not believe a Wizz-EasyJet deal is imminent, we identify potential merits to the tie-up. The combined entity would be the second-largest operator in the European short haul market by capacity (behind Ryanair), enhancing industry consolidation and discipline," said Berenberg.
"Wizz would also give EasyJet a runway for growth or accelerated A319 retirements, given its expected deliveries of c120 aircraft from FY 2020 to FY 2024E. If Wizz Air's private equity backer, Indigo Partners, is behind the recent bid, such an entity would have enhanced EasyJet's bargaining position with OEMs, and potentially instilled more rigorous cost discipline in the combined group"