DAVY VIEW

We increase our price target to the bid price of Castlelake’s fifth indicative and conditional proposal (£6.90), which the easyJet Board would be minded to recommend. We believe there is a high probability of it succeeding, and with the stock trading near the bid/asset value rather than near-term trading conditions. We think the value is fair/full (most airline stocks trade below asset value) and the regulators will approve. We think Stelios will row into the partial alternative involving unlisted share structure. More fundamentally, private equity is likely to unlock more value through changes to the capital structure and operating discipline. We expect Castlelake to broadly keep the current airline/holiday structure (tightening the network), with an exit over the next decade in the form of a sale (whether it would happen or not, but a combo of easyJet-Wizz makes most sense) or refloat. At 10% of the European market, we see a privately owned easyJet as good for the industry market structure.