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Good morning,
Markets are called higher this morning. This is what's happening today:
A case to be invested in equities
America, birthplace of the credit crisis that erased $37 trillion from global equity values, is leading the world’s stock markets back. The Dow Jones Industrial Average rallied 126 points to 14,253.77 yesterday, joining Denmark’s OMX Copenhagen 20 Index among major stock gauges in the 45 largest markets to regain all-time highs, according to data compiled by Bloomberg. Four years after bottoming, equity benchmarks in those countries are an average of 27 percent below their peaks, the data show.
About $10 trillion has been restored to U.S. equities, fueled by the fastest profit growth since the 1990s and monetary stimulus from the Federal Reserve. Retailers, banks and manufacturers led the recovery from the worst bear market since the 1930s as the Dow took less than 65 months to rise above its previous high set on Oct. 9, 2007, more than a year faster than the recovery from the Internet bubble.
While the Standard & Poor’s 500 Index remains 1.6% from its 2007 high, American gauges including the Dow Jones Transportation Average, the Russell 2000 Index of smaller stocks and the S&P Midcap 400 Index have reached records. By contrast, the U.K.’s FTSE 100 Index has almost 8% to rise before regaining an all-time peak, while China’s Shanghai Composite Index must more than double.
EasyJet (Main points from a report issued by Barclays on 28/01/13)
easyJet’s IMS highlighted the benefits of the group’s revenue efforts and network position. We remain focused on LCCs’ revenue performance (which appears strong), as high fuel costs and flag carrier restructurings narrow marginal costs in the industry. Schedules suggest easyJet’s easing competitive trend will continue, but to lessen into 2H. Further, easyJet’s premium relative valuation (at c12x PER) to Ryanair keeps us EW, despite Ryanair’s FCF yield twice as high as easyJet’s. We raise our target to 950p from 675p, reflecting our 17% PBT FY13E upgrade and broader re-rating of airline shares.
Easing competitive capacity, lessening into 2H: 1Q revenue per seat up 8% (constant currency) was strong, as expected. Management noted that allocated seating had a minimal impact, focusing first on operations, which have gone to plan. Into summer, management expect some capacity returning to its markets (consistent with schedules), particularly from charter operators. Such an uptick would pressure revenue per seat, which we have slowing to 1% y/y in 2H from 6.5% in 1H (ex-currency).
Cost performance going to plan, with help from less disruption: Mild weather contributed to outperformance in cost per seat, up 2.9% to easyJet’s prior 4%-5% 1H guide (now 3.5%-4.5%). We expect c3% for FY13, driven by lower marketing spend and applying the benefit of lower levels of disruption.
Raising estimates on lower disruption, continued revenue momentum: We apply forward slightly more unit revenue momentum from lower competitive pressure and commentary around a strong start to the ski season. We estimate a 1H PBT loss of £68m, to management’s £50m-75m guidance. Combined with better cost performance, we increase our easyJet FY13E PBT 17% to £391m.
For more information on EasyJet or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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