The Investment Column: EasyJet bookings rise, but its shares lose altitude

Morgan Crucible; Cashbox
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The Independent Online

Our view: Sell

Share price: 254.25p (+9.75p)

EasyJet's corporate slogan is, "Come on, let's fly!" The budget airline's shares have patently not been listening having lost more than half their value in 12 months.

According to the company's June passenger figures, the number of people using the group's planes is up an impressive 19.5 per cent. However, that includes footfall from the acquisition of GB Airways earlier in the year, leaving the actual overall load factor – the extent to which seats on its planes are occupied – pretty static. The good news is that the group has sold 70 per cent of seats to the end of September.

EasyJet is trying hard to stimulate revenues by introducing policies such as charging customers for putting bags in the hold and pushing more hotel and car packages. The evidence is that this is working well.

The big problem, however, is the price of oil, which has stymied the stock. A spokesman for the group concedes there is an inverse relationship between the price of Brent Crude and EasyJet shares and that the stock is not going to recover while the price of the black stuff increases.

Analysts at Panmure Gordon have cut the group's price target to 270p, having previously said it would reach 326p. The thinking is that EasyJet will be unable to pass on fuel costs and that investors should hold the shares as a result.

Holding is dangerous. The stock last traded at 270.5p on 24 June and has fallen steadily since November last year when it reached 659p: it is difficult to see anything around the corner to change this.

House broker Credit Suisse says that easyJet's low cost base will enable it to weather the worst of the downturn, stating that the stock will reach 425p.

Even if most economists are right in thinking that oil prices will begin to fall sometime next year, it is going to take some time for the market to appreciate. There is no evidence to suggest that EasyJet shares will not continue to slide for the foreseeable future. Sell.

Morgan Crucible

Our view: Buy

Share price: 188p (+16p)

It is getting increasing tricky to find companies that investors should buy. Those that held on to blue-ribbon shares like Marks and Spencer and some of the UK's more prestigious banks, believing the so-called experts who said that the present economic downturn would be short and sharp, are now regretting listening to that advice.

Arguably, investors would have been no better off looking at groups such as engineering firm Morgan Crucible, which makes ceramic and carbon components for industry. The company's stock has fallen 30 per cent in six weeks.

That, however, is where the similarities with most of the rest of the market end. Analysts at Numis upgraded the stock yesterday, saying, "the shares are trading on 7.9 times 2008 [earnings] falling to 7.3 times [in] 2009, a 25 per cent discount to the sector... wholly unjustified in our view". Chief executive Mark Robertshaw says the fall in valuation is due to the group's not being terribly well understood by the market. The group generates just 10 per cent of revenues in the UK, where industry is suffering, and operates in a multitude of sectors and countries: a strength, claims Mr Robertshaw.

Potential buyers should be wary that little changed for the company over recent weeks to precipitate the 30 per cent fall in the stock. It is because the market is not happy that Morgan Crucible is a wholly different company to the one that suffered badly due to high exposure to telecoms and automotives during the last downturn.

However, the company is doing what it can and issued a trading update yesterday saying that the full-year expectations remain on track. The order book is ahead of this time last year and the board remains confident. Investors should back them. Buy.


Our view: Cautious hold

Share price: 6p (unchanged)

Everybody does it because it is convenient. Everyone swears they will never do it again, but inevitably, they do. It is because of this that cash machines charging customers to withdraw their own money have become a permanent fixture in local shops and petrol stations.

Cashbox, which has an estate of some 2045 machines, issued a trading update yesterday saying that its number of machines is increasing, even if the income generated per ATM is falling.

No worries, says chief executive Ciaran Morton, who argues that the group is in transition and now that most machines are in place, the next stage is to ensure maximum usage by switching locations about, increasing marketing and allowing customers to print things like tickets.

He will have to hurry from investors' point of view. The stock has performed badly in the last 12 months having fallen more than 66 per cent.

Sadly, Cashbox has a rather chequered management past, which is all now resolved, says Mr Morton, who has since taken up his post. Investors should wait to see more evidence, but should ask if the stock can possibly go any lower. Cautious hold.