easyJet recovery likely to lag competitors with GBP1.2bn rights issue causing dilution, says UBS


easyJet PLC (LSE:EZJ)’s recovery is likely to lag that of its competitors Ryanair Holdings PLC (LSE:RYA) and Wizz Air Holdings (AIM:WIZZ) PLC, according to UBS.

Its fellow budget carriers may return to pre-pandemic traffic levels since they are not so focused on the UK.

READ: easyJet PLC shares hit turbulence after it rejects bid approach and launches GBP1.2bn rights issue

easyJet has low visibility in the short term, plus it is not helped by costly COVID-19 tests hitting demand.

The Swiss bank reckons that the GBP1.2bn rights issue will lead to fewer questions around the balance sheet, however, the share count could increase by nearly two thirds.

This will lead to significant dilution once the airline returns to profit, which might weigh on market sentiment, but some City watchers think it could not be helped.

“If easyJet wanted to have a chance of emerging from the COVID-19 crisis with a similar amount of financial leverage to that with which it went in, then a raise of this kind of magnitude (GBP1.2bn) was always going to be required,” analysts at Deutsche Bank (NYSE:DB) said.

“Given the uncertainties that remain in relation to the COVID-19 pandemic, we can understand management’s desire to ‘protect easyJet’s long-term positioning in the EU aviation sector’ and therefore to act now.”

According to Barclays, the extra cash will allow easyJet to weather a slower traffic recovery as well as pursuing growth opportunities, including new slots at core airports (Orly, Schiphol, Gatwick and Linate) and potential fleet expansion.

The London bank still prefers Ryanair and Wizz Air, as they offer “attractive growth and balance sheet strength similar to easyJet post-rights issue”.

Shares in easyJet dipped 2% to 691.45p on Friday morning, while Ryanair and Wizz Air both shed 1% to EUR15.62 and 4,840p respectively.


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