EasyJet (LSE:EZJ) was downgraded by both RBC Capital Markets and Citi Research this week after the airline’s share price surged following Castlelake’s takeover approach. While both brokers raised their price targets, they argued that the recent rally has created a more balanced risk-reward profile and highlighted continued uncertainty over whether a transaction will ultimately be completed.
Brokers lift targets but adopt more cautious stance
RBC lowered its recommendation to “sector perform” from “outperform” while increasing its price target to 600 pence from 405 pence. Citi also downgraded the stock to neutral/high risk from buy/high risk, lifting its target price to 580 pence from 500 pence.
According to RBC, EasyJet shares have gained 44% since Castlelake’s approach became public, outperforming airline peers by more than 30% over the same period. Citi estimated the shares have risen approximately 75% from their mid-May lows.
Takeover discussions continue
Both brokers noted that Castlelake has submitted several takeover proposals. RBC said EasyJet rejected offers of 560 pence, 600 pence and 625 pence before receiving a latest proposal of 650 pence per share.
Citi stated that the most recent proposal, submitted on 17 June, offered shareholders 625 pence in cash, with an alternative option of receiving non-voting, non-transferable shares. Earlier proposals had been made at 560 pence and 600 pence. Citi also noted that Castlelake has until Sunday, 5 July, to make a formal offer.
“The view of easyJet’s Board that Castlelake’s offers significantly undervalue easyJet, suggests to us that more than a further 25p/share increase in the offer price would be required for a deal,” RBC said. The broker estimated that a 700 pence per share offer would represent around 22% upside from current levels.
Citi estimated EasyJet’s net asset value at between 770 pence and 890 pence per share, excluding the value of its aircraft order book and airport slots. Based on Castlelake targeting a 20% to 25% investment return, Citi calculated an implied acquisition value of between 710 pence and 740 pence per share, well above the latest 625 pence proposal.
Analysts highlight execution risks
Despite the higher valuation estimates, both brokers warned that a successful takeover is far from guaranteed. Citi identified the key risks as securing shareholder acceptance on price and obtaining regulatory approvals, while RBC said “there is no certainty that a firm offer will be made, or a price can be agreed.”
RBC also cautioned that EasyJet shares could decline by more than 20% if takeover discussions collapse, estimating the shares could return to around 443 pence based on historical trading levels before the bid emerged.
Separately, Citi said EasyJet’s standalone recovery story now offers limited additional upside following the recent share price rally. The broker added that trading conditions for the summer season remain challenging, citing weak ticket pricing and continued underperformance on UK-Spain routes, particularly from London, where competition from Jet2 remains intense.
RBC added that EasyJet’s decision to grant Castlelake access to limited commercial information suggests the board “would be open to an offer at a higher price.”
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