Jet2 (LSE:JET2) will not be a FTSE airline/journey firm I had thought of investing in till just lately. Nevertheless, it was actually a case of discovery. The inventory has surged 31% over the previous month, however I nonetheless suppose it might go a lot larger. Right here’s why.

Robust restoration and spectacular progress

Jet2’s turnaround for the reason that pandemic has been nothing in need of exceptional. Revenues bounced from simply £395m in 2021 to a projected £8.6bn by 2027, reflecting not solely a restoration in demand but additionally the group’s well-managed enlargement technique. EBITDA is forecast to rise from destructive territory in 2021 to £910m by 2027, whereas web revenue is anticipated to prime £470m in the identical yr. That is all going down whereas the agency continues to put money into its fleet and providing.

Internet money sweetens the deal

One among Jet2’s standout monetary options is its web money place. From 2023 onwards, the corporate’s web money (destructive web debt) has surged, rising from £1.25bn in 2023 to a projected £2.45bn by 2027.

Apparently, when the inventory fell in early April following Trump’s tariff announcement, it was buying and selling simply above its web money worth. Actually, the enterprise worth of the corporate was lower than one yr of web earnings.

This web money energy provides Jet2 monumental flexibility. It will probably put money into new plane, climate financial shocks, or doubtlessly return additional cash to shareholders. Importantly, it additionally signifies that conventional valuation metrics-such as enterprise worth (EV)-to-EBITDA and EV-to-free money move (FCF) are significantly engaging, as they totally replicate the corporate’s cash-rich place.

Specializing in ahead, web cash-adjusted metrics, Jet2 appears attractively valued. The EV-to-EBITDA ratio is forecast to fall from 2.7 instances in 2023 to simply 1 instances by 2027, whereas EV-to-FCF stays round 2 instances over the forecast interval. These multiples are nicely beneath the sector common for journey and leisure shares, reflecting each Jet2’s progress and its fortress-like steadiness sheet.

Investing for the long run

Jet2 is enterprise a significant £5.7bn funding to modernise its barely older fleet (common age 13.9 years), transitioning to a majority Airbus configuration by 2031. The addition of fuel-efficient A321neo plane will enhance capability from 135 to 163 planes, minimize gasoline consumption, and enhance operational effectivity.

This capital expenditure aligns with business requirements, representing about 11.4% of projected 2025 income and declining as gross sales rise. Crucially, Jet2’s strong web money place — forecast to achieve £2.7bn by 2027 — means the corporate can fund this bold improve with out stretching its steadiness sheet.

Issues

I’ve so as to add that margins on this a part of the business — package deal and price range — are slightly tighter than for the likes of IAG. And that might current a difficulty for buyers if we see a slowdown in financial progress or much more price stress. The corporate had beforehand advised that the autumn Price range would add £25m in prices.

Nevertheless, for me, Jet2’s mix of robust web money, valuation, and forward-looking funding makes it stand out within the UK journey sector. The corporate’s means to fund enlargement from its personal sources, fairly than counting on debt, provides it a strategic benefit and reduces threat for shareholders. All thought of, I’ll purchase extra though it’s already my largest holding.