The Investment Column: Get on board easyJet for the long haul
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Your support makes all the difference.easyjet: Our view: Long-term buy
Share price: 339p (+7.5p)
For the second time in under a week easyJet has come out with bullish news for investors. Yesterday, the no-frills airline boasted of a strong Easter, having flown 2.85 million passengers during April, a 17 per cent rise on a year ago. The proportion of seats filled on easyJet flights in the month rose to 86 per cent from 85 per cent a year ago.
Last week the airline put out better-than-expected interim results and raised its profit forecasts for the full year. Andy Harrison, the group's new chief executive, told the City to expect profit growth of 10 to 15 per cent for the year compared with mid to high single-digit growth previously. This leaves analysts forecasting a pre-tax profit of about £95m, up from £67m in 2005.
This is despite the soaring fuel price easyJet faces. So how does the company do it, given its promise not to pass this on to travellers in the form of fuel surcharges? The answer is by tight cost management and by making money from ancillary services such as insurance, hotels and hire cars.
Back in January, easyJet stock traded at well over 400p. Then, many investors were betting on a takeover of the company. However, this hope faded in April when FL Group, the Icelandic investment company, sold its 17 per cent stake at 338p. Yesterday the shares closed at 339p, up 7.5p.
A bid is not required to take easyJet stock back above the 400p level. Europe's no-frills airline industry is growing at 15 to 20 per cent per annum and the group is perfectly placed to take advantage of this. Of course there are risks, another war in the Middle East or further terrorist attacks are likely to hurt demand at the airline. However, easyJet has seen off such challenges in the past and it should be able to do so again. The shares are a long-term buy.
Vernalis
Our view: Buy
Share price: 81p (+3p)
The drug developer Vernalis shone with positive clinical trial data yesterday, which brings it a step closer to expanding the use of its migraine drug Frova to treat headaches related to menstruation.
A final-stage Phase III study has confirmed that Frova helps to prevent menstruation-related migraines when taken two days before the headaches are expected to start. Vernalis said its US partner, Endo Pharmaceuticals, which last year recruited the tennis star Serena Williams to front its "Rally for Menstrual Migraine" campaign, would now seek permission from the US Food and Drug Administration to market Frova as a treatment for the condition. It could be on the market within 12 months. About 2 million American women are estimated to suffer from menstrual migraine, which could translate into $280m (£150m) peak annual sales for Vernalis (Frova generates about $40m in sales at present). The treatment has already received a lot of publicity on both sides of the Atlantic thanks to Ms Williams' involvement. If approved, it will be the first drug of its class for the prevention of menstrual migraine in the US.
Vernalis expects to become self-financing by early 2009, armed with a strong portfolio of drugs for Parkinson's disease and migraine. It has two drugs on the market (Frova and Apokyn for Parkinson's disease) and seven at various stages of development - including obesity and cancer medicines.
Vernalis was formed from the fallen British Biotech and has expanded through acquisitions over the last decade. At 81p, the shares are well worth a punt.
Datacash Group
Our view: Buy
Share price: 170p (+33.5p)
Datacash, which helps companies authorise and settle credit card and debit card transactions, unveiled a deal yesterday that doubles the company's size and takes it on to the international stage. The group plans to buy Proc-Cyber, a South African payment processing firm, for £62m in shares.
Strategically the tie-up makes great sense. Proc-Cyber has a broader range of services while Datacash has a significantly broader client base. The merger of the two means that Proc services can now be sold to Datacash customers. This should boost the profitability of the combined group in a big way.
Datacash did well to survive the fallout from the dot.com collapse. After floating during the boom its shares hit a high of 700p. By May 2001 they traded down at 7p. Now Datacash seems firmly on the growth path.
Following yesterday's deal, analysts have raised their forecasts for Datacash by 10 per cent in the current year and 15 per cent for the year after. This leaves the group's shares trading at 16 times 2007 earnings. For a company with Datacash's prospects, that is not expensive. This column tipped the stock as a buy in January at 125.75p. Since then it has risen 35 per cent. Keep buying.
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