Broker snap: easyJet upgraded but risks remain

24th Mar 2011 10:45

Budget airline easyJet has been upgraded to a 'hold', from 'reduce', by Charles Stanley Securities following recent share price weakness, but the broker cuts its earnings forecasts in response to oil prices and risks on bottom-line growth.The broker trims its estimates after the recent surge in oil prices and the inevitable impact they have on airlines. It also notes that easyJet's average pre-tax profit per seat is about £3.40, below the group's target of £5 for the ninth consecutive year. "Below that target level, the chances of an adequate return on capital are small," said analyst Douglas McNeill.Charles Stanley reckons that the airline earns over £120m a year from card booking fees, just below the £130m it has averaged over the past five years. However, the Office of Fair Trading will shortly be looking into the use of card booking fees and may decide to prohibit them, perhaps as early as this summer."If outlawed, card fees can always be recouped via the basic fare, but there's no guarantee that they would be recouped in full. We estimate that every £1m not recouped would reduce equity value by about 2p a share," said McNeill.The target price is cut by 10p to reflect this, from 330p, to 320p.