RBC Capital Markets and Citi Research have both downgraded EasyJet Plc to neutral ratings this week, reflecting a cautious outlook amid a significant surge in share prices following a takeover proposal from the investment firm Castlelake. The analysts highlighted a balanced risk-reward scenario and expressed uncertainties regarding the likelihood of a successful deal.
RBC adjusted its rating from “outperform” to “sector perform,” increasing its price target from 405 pence to 600 pence. Meanwhile, Citi modified its rating from “buy/high risk” to “neutral/high risk,” with a revised target of 580 pence, up from 500 pence. The move comes as EasyJet shares have climbed 44% since the public announcement of Castlelake’s interest, outperforming its peers by more than 30%. In comparison, Citi noted that shares have rallied 75% since mid-May.
Castlelake has made multiple proposals to acquire EasyJet, including recent offers of 560 pence, 600 pence, and 625 pence per share. The most current bid, dated June 17, stands at 625 pence in cash, with an alternative for shareholders to opt for non-voting, non-transferable shares. The firm has until July 5 to submit an official offer.
RBC’s analysis suggests that EasyJet’s Board perceives Castlelake’s offers as significantly undervaluing the airline. They estimate that a further increase of more than 25 pence per share would be necessary to reach a negotiated agreement. A potential takeover at a 700 pence share price would represent a 22% upside from current valuations.
Citi placed a value estimate for EasyJet’s net assets in the range of 770-890 pence, excluding consideration for the company’s order book and airport slots. The brokerage noted that if Castlelake pursues a return of 20-25% on the acquisition, a more realistic offer would lie between 710 and 740 pence, significantly above the latest 625 pence bid.
Both institutions voiced concerns about the challenges that could impede a successful deal, including acceptance of the price by EasyJet’s Board and the necessary regulatory approvals. RBC emphasized that there is no guarantee a firm offer will materialize or that an agreeable price could be established.
In the absence of a takeover, RBC warned that EasyJet shares could see a downward trend of more than 20% in the short term. They indicated that if shares trade approximately 11% higher than their May 29 value of 398 pence, this would still reflect over 20% downside from current levels.
Citi further noted that EasyJet’s turnaround strategy appears to offer limited upside following the recent price surge. The airline is facing challenging trading conditions, particularly in pricing for the upcoming summer season, with routes such as UK-Spain, particularly London, underperforming in comparison to the overall network.
RBC revealed that EasyJet’s board has taken steps to provide Castlelake with access to limited commercial information, signaling that they may be open to negotiating an offer at a more favorable price.
