FTSE 100 falters as pound rises, but easyJet leads airlines higher

Discussion in 'Market News' started by Lily, Oct 12, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Leading shares fall further from Tuesday’s record high

    As sterling recovers some of its recent heavy losses, leading shares have taken their cue from falls in overseas markets.

    The prospect of a full debate on Brexit as now promised by prime minister Theresa May has awakened hopes that a hard line in negotiations with the EU may be moderated, lifting the pound by more than 1% to $1.2272.

    EasyJet has issued a new 2023 bond at an attractive low coupon rate. To us this suggests market confidence in its budget airline business model and balance sheet. It follows a tough 2016, in which exceptional events (e.g. terrorist acts and air traffic control strikes) cost the airline over £200m. The stock has been weak, underperforming the European airlines sector in the past quarter and is good value, trading on a calendar 2017 estimated PE of 9 times. This is a 30% discount to its long-run average PE. The dividend yield is 5%. We note that consensus forecasts for this year (2017) have fallen sharply and now suggest no growth year-on-year. If 2017 proves to be less turbulent there could be good upside to consensus. We view the current price as an attractive entry level point and reiterate buy, with a target price of 1,300p.

    It’s been a while since easyJet was top of the FTSE leader board. At least a week. Today’s gains come thanks to a welcome hat-trick of; 1) the pound regaining some poise versus the euro; 2) another successful €500m 7 year bond sale, and; 3) bargain hunters jumping on-board the current 8% bounce from an 850p level last traded in Jan 2013.

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