Results analysis: easyJet and JD Wetherspoon get cool reception

easyJet

easyJet (LSE:EZJ) may have posted its usual and expected winter loss, but on closer inspection the group has made substantial progress which should insure another year of growing profitability.

The headline quarterly pre-tax loss of £61 million came against expectations of £70 million and was a marked improvement on the £126 million loss from the previous year. Increased costs of 9% contributed to the negative figure, but there were strong signs of revenue growth nonetheless. Passenger revenue increased by 11%, ancillary revenues by 10% and the holidays business by 36%.

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

Indeed, it seems that the launch of the holidays unit has come at the right time, with cost-conscious consumers searching for value packages, and the group has high hopes for the unit’s longer-term contribution to overall profits. This also chimes with the group’s value-conscious appeal and the increasing body of evidence, which tends to suggest that the family holiday remains almost sacrosanct and outside of normal budgetary restraints. From a standing start, the unit now accounts for around 30% the group total, and saw a gain of 39% in the quarter to record a profit of £43 million, while being 93% sold for the first half of this year.

Alongside the benefit of increasing ancillary revenues, which include the likes of customer payments for personally allocated seats, baggage and food, the group is maintaining its full-year outlook of pre-tax profit of £709 million. This comes alongside its stated medium-term aim of £1 billion of pre-tax profit.

However, the sector is one which is notoriously difficult on any number of fronts and the cool share price reaction to the update reflects this. There has been a host of external factors outside of the industry’s control traditionally, which have made the airline industry a difficult investment destination.  These have ranged over the years from the possibility of strike actions to conflicts and volcanic ash clouds, let alone the major shock which the pandemic brought.

• IAG and easyJet among airline share tips for 2025
• 19 UK stocks on list of conviction ‘buy’ ideas for 2025
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Despite the undoubted progress, easyJet’s share price had risen by just 3% over the last year prior to the update, as compared to a gain of 14% for the wider FTSE100. This performance has been hampered by a dip of 11% over the last month, largely due to heightened political tensions and strong oil price gains in January. It is also in sharp contrast to the fortunes of larger rival International Consolidated Airlines Group SA (LSE:IAG), where the British Airways owner has enjoyed a share price hike of 128% over the last twelve months.

Even so, EasyJet continues its ascent, underpinned by increasing ancillary revenues and profits for the holidays business, and the reduction of first quarter losses should provide a tailwind for the remainder of the year. As such, sentiment is likely to remain positive on prospects and the market consensus of the shares as a buy should stay intact.

JD Wetherspoon

On the face of it, Wetherspoon (J D) (LSE:JDW) enjoyed its festive season and indeed the last six months as a whole. Like-for-like sales were up 5.1% in the 25 weeks to 19 January, with strong growth in bar and food sales offset by some weakness in its smaller hotel business.

The group’s net book value of its assets, including its largely freehold pub estate, was last reported at £1.4 billion and a general improvement in trading conditions led Wetherspoons to reintroduce a dividend payment after an absence of five years. The projected yield is a modest 2%, but nonetheless represents management confidence in prospects and also ran alongside a £40 million share buyback programme in the period.

• Stockwatch: why I’m upgrading this small-cap share
• Scottish Mortgage: Trump’s deregulation could boost these shares
• Can tech shares keep rising under Trump?

In the meantime, Wetherspoons continues to rail against the authorities on a number of issues which it feels are detrimental to its business, and most vociferously on the issue of tax inequality with regard to VAT and business rates compared to the supermarkets. This has now come into particularly sharp focus given the measures introduced in the Budget, which the group estimates will add £60 million per annum in costs from April, putting additional and unwanted pressure on its already fine margins.

Given the possibility of a tepid economic outlook at best in the UK, the shares have taken the brunt of potential consumer retrenchment and have fallen by 27% over the last year, as compared to a gain of 8% for the wider FTSE250. While the market consensus of the shares as a strong hold reflects some conviction in Wetherspoon’s ability to continue to fight its corner, it also adds some caution into an increasingly challenging mix.