This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

With its stock caught up in the worldwide sell-off, Jet2 (LSE:JET2) now has a market cap of £2.4bn. Nonetheless, the FTSE AIM firm has an astonishingly sturdy net money place of £2.3bn. This is extremely uncommon in the aviation sector just because airplanes don’t come low-cost.

The enterprise is valued at simply £100m

These figures recommend that Jet2’s enterprise is valued at simply £100m. Basically, the market is attributing minimal worth to Jet2’s working enterprise, together with its fleet, infrastructure, and future earnings potential.

Such a valuation is uncommon for an airline, particularly one like Jet2 that has constantly delivered sturdy monetary efficiency. For instance, the corporate forecasts earnings of £560m-£570m for 2025, pushed by expanded operations and elevated passenger capability. 

Moreover, Jet2 owns priceless bodily property, corresponding to airplanes recorded on its books beneath property, plant, and gear (£1.3bn) and right-of-use property (£596m), alongside its rising tour operator section.

The undervaluation might mirror market considerations about rising prices, aggressive pressures from low-cost carriers like Ryanair and easyJet, and delays in plane deliveries. Nonetheless, it has an enterprise value-to-EBITDA (earnings earlier than curiosity, taxation, depreciation, and amortisation) ratio of simply 0.18. That’s far under trade norms, indicating that the stock may really commerce many instances increased. To me, it’s clear that Jet2’s stock is being neglected by traders.

Transition planning

Jet2’s marginally older fleet and transition plan may weigh on the share value, however solely a little. Jet2 is investing closely in fleet modernisation, with a whole dedication of 146 Airbus A321neo plane, valued at roughly $8bn at base value, although vital reductions have been negotiated. 

Jet2 initially ordering 36 A321neos in 2021, however steadily expanded its order, changing 35 A320neos to the bigger A321neo variant for elevated capability. The brand new plane promise 20% larger gasoline effectivity and a 50% decrease noise footprint, supporting Jet2’s sustainability targets. 

Deliveries are scheduled via 2035, changing growing older Boeing 737s and retired 757s, making certain operational price efficiencies and enhanced passenger expertise. The capital expenditure price is definitely anticipated to come back in under trade norms for fleet substitute.

Dangers and challenges

Nonetheless, Jet2 faces challenges in the shape of rising prices, together with a further £25m yearly as a result of elevated Nationwide Insurance coverage contributions and increased wages, alongside £20m for sustainable aviation gasoline mandates. The airline additionally dangers increased upkeep bills as U.S. tariffs on imported components disrupt provide chains, probably growing spare half prices by 3%-5% and inflicting delays. These pressures, coupled with delayed plane deliveries and inflationary tendencies in airport and lodging fees, threaten revenue margins regardless of strong demand and hedging methods.

The underside line

I don’t doubt there are some near-term challenges for Jet2. Nonetheless, journey demand has been very strong in latest years and there might be alternatives to go these prices on to prospects. The caveat being that Jet2 prospects could also be extra value delicate than British Airways prospects and that the corporate’s margins are a little thinner. Nevertheless it’s additionally price noting that gasoline prices are coming down considerably — as a lot as 10% final week. This ought to have a vital affect on prices.

For me, the positives massively outweigh the challenges. I imagine it’s considerably undervalued and am persevering with to construct my place.