It’s been a while since easyJet (EZJ) was top of the UK Index leader board. At least a week. Today’s gains come thanks to a welcome hat-trick of; 1) GBP regaining some poise versus EUR; 2) another successful €500m 7yr bond sale, and; 3) bargain hunters jumping on-board the current 8% bounce from an 850p level last traded in Jan 2013.

An overnight GBP/EUR recovery is a welcome sight given that it is a Brexit-induced slump in the currency that lead to last week’s FX headwind-inspired profits warning. Beware though that GBP/EUR has lost a further 2-3% in the last week, meaning the dent to profits could actually prove even worse by year-end, should it remain around current levels.

A successful bond sale can also be considered a solid vote of confidence in the budget airline from debt markets. Getting away a second €500m bond maturing 2023, but this time with a coupon of just 1.125% (versus a 9x oversubscribed 1.75% in Feb) confirms the company not having to pay through the nose-cone to borrow from the markets, in spite of last week’s profits warning.

Debt investors are clearly prepared to take a longer-term view than those in equities, which is helping sentiment today. Although it could be argued that any yield attracts interest right now, very much a sellers’ market. Having to pay a higher yield than February, suggesting the company unable to make hay while the bond markets shine, profiting from central bank stimulus sending borrowing costs to historic lows, would surely have been taken negatively by equity investors keeping the shares parked below the 900p mark.

Have shareholders seen the bottom? Are they indebted to a welcome sentiment boost from credit markets?

Mike van Dulken, Head of Research, 12 Oct