easyJet (LON:EZJ) (855p and 4.9% of JIC portfolio) has announced strong Q1 results for the quarter ending 31st December 2012. Revenue was up by 9.2% to £833m, seats flown increased by 5% to 15.5m with the load factor up 1.0 percentage point to 88.6% and revenue per seat up 8% (constant currency). Costs came in lower than expected with costs per seat excluding fuel rising by2.5%, well within the previous guidance given in November of a 4% expected increase. At the 31st December the Company had cash of £833m on the balance sheet. All this leads to an expected first half loss of between £50m and £70m which compares to the £112m loss recorded last year and £153m loss in 2011.
Carolyn McCall, Chief Executive put the good results down to their firm control on costs, the strength of its network, tight capacity discipline and pricing actions. easyJet has been in the press again this week with Sir Stelios Haji-Ioannou and his family selling a small part of their 37% stake in a warning shot to management over its future direction.
He says that the reason for the improved results over the last year is due to tighter control of capacity, leading to firmer pricing. This has improved cash flow and permitted the huge increase in the dividend. He is keen that the Company does not go ahead with a new order for aircraft which he believes will impact adversely on returns.
Personally I think he has a point although there needs to be a balance between running the business for cash and investing for future growth. It is a worthwhile debate but sometimes one feels that he doesn't handle it as well as he might. The shares have had an excellent run over the last year and no doubt there will be some calls for profit taking and indeed I reduced my holding very slightly last week to 5.
I think however the shares can make further progress as the valuation still looks reasonable on a PER of 11.9x September 2013 and 10.5x September 2014 for growth of 24% followed by 15%. easyJet has done all this during difficult economic times in the UK and Continental Europe; imagine what might happen if the background improves. Happy Holder!
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