EasyJet shares jump as Italian shipping firm circles airline business

Both parties firmly denied the rumours, which had been reported in the Italian newspaper Corriere della Sera. But shares had risen to their highest since August. What made the story seem so credible?

EasyJet’s shares, which have remained low compared with rivals since the pandemic, may provide some explanation. Its valuation is “around 60% below pre-Covid levels,” said Aarin Chiekrie, an equity analyst at Hargreaves Lansdown.

On Tuesday, analysts at Bank of America (BoA) noted that EasyJet’s shares are trading at 6.4 times its earnings, well below its average of 11 times. “We consider this unjustified, given its solid earnings prospects,” they added. Indeed: in May it said it expects pre-tax profits of £703m this year, up from £610m. That makes it “look a bargain”, said Chiekrie.

But MSC seemed a strange fit. “It is not a natural buyer of this business,” said Alex Paterson, a transport analyst at Peel Hunt. There’s some precedent for logistics businesses buying airlines – Kuehne+Nagel has a 15% stake in Lufthansa – but, as Paterson said, MSC is “involved in shipping, rather than air”.

Perhaps the interest of MSC, which operates a cruise arm, was piqued by EasyJet’s growing package holiday business? It launched shortly before the pandemic but, since the travel market reopened, it has shown steady growth.

Profits rose £13m to £44m, its half-year results showed; the company said it expects full-year customer growth of 25%.

Still, some challenges would remain for any buyer: EasyJet’s main base at Gatwick, for instance, is planning an expansion, providing the hope of additional, highly coveted take-off and landing slots. But the approval process for runways is glacially slow, and this week a campaign group lodged a major legal challenge against it.

And EasyJet’s founder and largest shareholder, Sir Stelios Haji-Ioannou, who owns a 15% stake in the airline, is not thought to be interested in a buyout. “It’s unclear if he would be willing to sell his remaining stake,” wrote Bank of America Merrill Lynch analysts.

EasyJet “is well capitalised, it is growing a holiday business quite quickly, and is a very profitable business”, said Paterson. “But I suspect there won't be anything anytime soon.”

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