The Week Ahead (17-21 Feb): Jet2, Miners, Banks

It was another eventful week in the markets, with inflation back in the spotlight and rate-cut hopes dimming. U.S. consumer prices came in hotter than expected, rising 0.5% in January—the biggest jump in nearly 18 months. That puts the annual inflation rate at 3.0%, reinforcing the Federal Reserve’s stance that it’s not in a hurry to start cutting interest rates.

The inflation surge was broad-based. The concern now is that this isn’t just a seasonal blip—there’s a real risk that inflation pressures could stick around for longer than expected. Markets initially didn’t take the news well, but quickly recovered.

Across the Atlantic, European markets had a very strong week. The STOXX 600 hit an all-time high, buoyed by strong earnings from Heineken and ABN AMRO in the Netherlands. Germany’s leading index, the DAX, also continues to defy all expectations, surging more than 12% year to date.

The European markets are seemingly shrugging off the looming US tariff threats, but this could introduce fresh uncertainty in the coming weeks. Back home, we have inflation figures and unemployment statistics to look forward to next week.

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Economic Calendar

Companies Reporting

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Jet2 - FY Trading Update

One of the most successful companies listed on the London markets over the last two decades, leading package holiday provider Jet2, is set to release its full-year trading update on Wednesday.

The company has long been a favourite among investors who appreciate its combination of operational excellence, a strong balance sheet, and consistent execution in what is typically a very difficult sector for investors. Yet, despite its impressive financial performance, Jet2’s share price has remained stubbornly range-bound over the past few years.

Some believe the shares issued during Covid continue to act as a drag on the stock, but Jet2’s profitability and growth trajectory have fundamentally improved since then. So, what’s next for the company as it looks to reinvigorate the share price momentum that once made it one of the UK market’s standout multibaggers?

A well-oiled machine in the aviation industry

Jet2’s management team is widely regarded as some of the best operators in the sector. The company has built a strong reputation for customer satisfaction and diligent execution, carefully identifying cost efficiencies while strategically selecting the most profitable routes and maximising its fleet utilisation. This ability to extract maximum value from its aircraft, and holiday packages in particular, has been central to its success.

The company’s recent half-year results, published in November last year, already highlighted that full-year results would be ‘Ahead of Expectations’, with profit before tax likely to exceed the consensus of £541 million. Brokerage firm Canaccord Genuity was even more optimistic after this update, forecasting £564 million in pre-tax profits.

Given the strong recent updates from peers like EasyJet, Ryanair, and On The Beach, I’d wager Canaccord won’t be far off its profit estimates. It looks like the current 2025E and 2026E forecast net profit figures of £435m and £443m will need updating.

Beyond Jet2’s impressive profitability characteristics, which include a return on capital employed of over 15%, its current valuation is where things get really interesting. Canaccord noted after Jet2’s HY25 update that the shares were trading at a 40% discount to their historical PE ratio. Jefferies, another major brokerage, has since updated its price target to £22 per share - implying substantial upside from the current levels of £15.40.

A mammoth cash pile

Perhaps the most compelling argument in Jet2’s favour is its balance sheet strength. The company has amassed a net cash pile exceeding £2.2 billion, a staggering figure that provides significant financial flexibility. On an enterprise value to free cash flow basis, Jet2 is one of the cheapest companies on the London market (1.44 on a TTM basis). Free cash flow generation is so strong that the company could pay back its entire enterprise value in under 18 months.

This financial position contrasts sharply with some of its peers, such as Wizz Air, who remain saddled with debt. It gives Jet2 a pretty key advantage—offering protection against economic downturns while simultaneously enabling ambitious investments into growth opportunities without stretching the balance sheet too much.

Growth over share buybacks?

I was initially quite puzzled as to why Jet2’s management team weren’t engaging in more generous shareholder returns policies given the company’s ample cash reserves. A natural question would be why isn’t the company pursuing a share buyback programme to boost investor sentiment, especially given how well this has worked for British Airways owner IAG (where the share price has more than doubled over the last 6 months).

While this has worked well for IAG, Jet2 is arguably at a different stage of its investment cycle. The company has significant capital expenditure (CapEx) requirements, with 146 firm A321neos aircraft orders locked in until 2035 as it transitions from Boeing planes to more efficient Airbus models. The A321neo offers over 20% more seat capacity (232 seats compared to 189) per plane, improving fuel efficiency and unit economics. This lays the groundwork for further long-term profitability growth.

Source: Jet2 Interim Results Presentation

With a £5.7 billion CapEx program in place over the next seven years, large-scale buybacks perhaps seem less likely in the near term. This may frustrate investors who have seen a lack of share price movement. However, Jet2’s management could still opt for more aggressive incremental dividend increases to reward shareholders, given the strength of its cash flows.

Strengthening its market position

Jet2’s growth ambitions are made unambiguously clear in each update it provides to the markets. The company is launching two new UK bases in 2025, including taking on a head-to-head battle with EasyJet at Luton Airport, as well as recently commencing flights from its 12th UK base at Bournemouth earlier this month. This aggressive expansion into key regional markets is part of Jet2’s strategy to capture additional market share.

Further international expansion is also underway. Jet2 has secured new routes to Morocco for next winter following a surge in demand, with CEO Steve Heapy stating: “We have experienced a phenomenal reaction since launching our Morocco programme. We are very excited to be giving even more holidaymakers the chance to experience these incredible destinations.”

Beyond Morocco, Jet2 is also increasing capacity on high-demand routes to Turkey, Greece, and Italy, capitalising on strong European travel trends where individuals are prioritising spending on holidays over other expenses.

Valuation disconnect

Despite its robust financials and growth trajectory, Jet2’s shares have failed to break out over the past four years. Excluding dividends, the stock has delivered little capital appreciation, even as the company has rebounded from a £271 million loss in 2021 to forecast profits of over £541 million this year. The cyclical nature of the airline sector, which historically trades at a discount, may be one reason for the lacklustre share price performance. However, it’s possible that post-pandemic sentiment still weighs on its valuation, despite passenger volumes having already surpassed pre-Covid levels.

Looking ahead, earnings estimates for next year are already moving higher. If Jet2 keeps expanding its network and those Airbus deliveries stay on track, we could see even more upgrades before long.

Jet2 is essentially being valued as a deep value stock right now, eventhough there is plenty of visible long-term growth on the cards.

Company risks

While Jet2 is fundamentally strong, there are a variety of risks that remain. The company noted that the increased National Insurance contributions are estimated to cost the company £25 million annually moving forward. Furthermore, while it is well-hedged for 2025 against fuel price fluctuations and currency risks, external macroeconomic pressures can never be entirely ruled out.

The company currently benefits from not operating extensively in eastern Europe or in the Middle East, however, unexpected shocks can come at anytime in the aviation industry. Fortunately, the company’s cash position should provide a decent enough buffer against such challenges.

Conclusion

Jet2 is one of the best-run travel companies in Europe, with a proven management team, a cash-rich balance sheet, and clear long-term growth strategy. While airline stocks traditionally trade at lower multiples due to their cyclical nature, Jet2 appears to be trading well below historical norms.

If you take the latest profit forecasts into account, you’re looking at a PE ratio of less than 7. Most broker price targets sit north of £20 per share, implying nearly 35% upside from current levels.

With double-digit earnings growth possible over the next few years and a significant long-term cost advantage from its Airbus fleet transition, Jet2 is well-positioned to continue leading the packaged holiday market, despite growing competition from the likes of easyJet.

It’s anyone’s guess what Jet2’s management has in store for Wednesday’s update, but given their excellent track record of results and the anecdotal evidence of strong market conditions, the odds seem to be in their favour.

Investors will be watching closely for any hints about how demand is shaping up for the year ahead, whether there are any tweaks to capacity plans, and if ongoing cost pressures—like rising National Insurance contributions—are expected to have a material impact. Any commentary on capital returns, forward bookings, potential new routes, or even fleet expansion updates could set the tone for how the market reacts on the day.

Disclosure: Keelan holds a long position in Jet2 at the time of writing.