The Times - UK (2022-04-13)

42 Wednesday April 13 2022 | the times

Business

The budget carrier said that it

expected to operate close to

pre-pandemic levels throughout

the summer, with bookings

up during the past six weeks

The new markets business of Rolls-

Royce, focusing on electrical power

for small aircraft and taxpayer-backed

small modular nuclear reactors,

could be lossmaking into the 2030s,

a broker has warned, pushing the

engineering group’s share price lower.

Rolls-Royce announced changes

to its reporting structure in February,

including the creation of a new

markets unit to pursue opportunities

from the transition to net zero.

In an equity research note to

clients yesterday, JP Morgan Cazen-

ove said the venture “offers good

long-term sales potential but there is

no guarantee of good profits”. The

broker said Rolls-Royce’s diversifica-

tion raised the risk for investors and

to the company’s earnings potential,

prompting it to downgrade the stock

to “underweight” from “neutral” and

cut its price target to 75p from 140p.

Shares in Rolls-Royce dropped

5¼p, or 5.5 per cent, to 89¾p, making

it the biggest faller on the FTSE 100

yesterday. This year the shares have

fallen by more than a quarter, valuing

the company at £7.5 billion.

The stock had rallied last month on

a speculative report on Betaville, a

deals website, which suggested that

Rolls-Royce could be involved in a

“significant corporate transaction”,

perhaps a merger or a takeover. Rolls

did not comment at the time and JP

Morgan, a long-term bear on the

stock, said in its note yesterday that

“we struggle to think of any realistic

buyer” but added: “We can-

not rule out the divest-

ment of a division.”

The new markets

unit was outlined

last month along-

side the an-

nouncement of

the departure of

Warren East as

chief executive

after a seven-year

tenure. Rolls is one

of Britain’s great industrial compa-

nies. Its engines power Boeing and

Airbus planes, RAF Typhoon jets and

the navy’s warships and submarines.

East said in February that when he

left by the end of the year, Rolls would

be “fit for the future”. Rolls said that

its new markets were “more challeng-

ing to forecast due to the pace of cus-

tomer demand growth and regula-

tion” but the potential was “signifi-

cant” and they could generate more

than £5 billion in combined annual

revenue by the early 2030s.

Rolls secured £490 million of fund-

ing last year to support investment in

the design of small modular reactors

(SMRs). JP Morgan said demand

could grow as nations seek to cut

emissions “but SMRs need

to compete with other

energy sources and

we see a high risk of

the first SMRs

being well over

budget”.

Due to new

investments

and lower ex-

pectations for

its core civil aer-

ospace division,

JP Morgan cut its

2022-25 earnings-

per-share estimates

for Rolls.

Rolls shares nosedive on net-zero fear

Alex Ralph Share price

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The British engineering

group was the biggest

faller on the FTSE 100

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EasyJet heads

for the heights

after two years

of turbulence

The boss of easyJet hailed a “strong and

sustained” recovery in trading since the

relaxation of travel restrictions as the

budget airline beat first-half forecasts.

Johan Lundgren, the chief executive,

said the recovery presaged “a positive

outlook for Easter and beyond” with

daily booking volumes tracking ahead

of pre-pandemic levels.

EasyJet, the dominant airline at

Gatwick, the second largest airport in

Britain, said that more bookings had

been made during the past six weeks

than in the equivalent period in 2019 as

customers booked closer to departure,

and it expected to operate at close to

pre-pandemic flight levels for the

summer as a whole.

In a trading statement for the six

months to the end of March, the airline

said its losses had reduced compared

with last year, outperforming expecta-

tions. This was despite the challenges of

Covid, rising fuel prices and costs from

ramping up operations. Much of the

outperformance was due to “self-help”

measures.

The airline said that it had boosted

capacity throughout the second quar-

ter, operating at 80 per cent of 2019

levels last month and at 67 per cent

for the three-month period. It carried

11.5 million passengers for the quarter,

up from 1.2 million in the second

quarter of last year.

Since the British government lifted

travel restrictions in January, the

airline said it had seen “a strong and

sustained recovery in trading”. It pre-

dicted revenues of £1.5 billion in the first

half of its financial year, with seasonal

pre-tax losses of between £535 million

and £565 million, compared with ana-

lyst forecasts for a loss of £618 million.

The war in Ukraine has had little

impact on the carrier: it benefited from

having very little exposure in eastern

Europe, with no routes to Ukraine,

Russia or Belarus. Its nearest network

points are Budapest in Hungary and

Krakow in Poland, which only account

for 1.4 per cent of its total capacity.

None of its flight routes need to operate

in Ukrainian, Belarusian or Russian

airspace so it does not have to reroute

its aircraft, which would mean in-

creased fuel consumption.

EasyJet said it continued to experi-

ence strong demand for the final quar-

ter from July to September, especially

on leisure routes. This has been boosted

by the addition of a further five aircraft-

worth of slots in Greece, making easy-

Jet the largest carrier flying into the

main Greek islands this summer.

The company said that its easyJet

Holidays division “continues to

strengthen its position as a significant

player in the holidays market” with

more than 70 per cent of the pro-

gramme already sold at “significantly

stronger” margins compared with 2019.

It has not all been smooth flying,

however. The short-haul European

Dominic Walsh