Halfway out of the turbulence

Summary
We leave our TP at 20.0 GBP and reiterate our Buy recommendation, reflecting the ongoing restructuring story. Following the fiscal Q3/26 conference call held on 29 January, we repeatedly concluded that the fruitful strategic overhaul is under way.
The management is building back confidence, so that’s good news for value investors. The problem is that they have to manage high-capacity growth (+24% seats and +30% ASK) during fiscal Q2/27. Key question remains how the market will be able to absorb this substantial capacity. Establishing the Israeli base or a Russia-Ukraine ceasefire and the resumption of civil aviation in Ukraine before the summer would represent a breakthrough; however, for now, we only see a higher probability for the former. As a result, hedge fund activity may persist, which could trigger significant share price movements.
Nevertheless, with the management transparently guiding massive growth for the summer, preparing for some RASK dilution and challenging costs driven by the retirement of CEOs, the era of the black box full of promises may be over.
The integration of these above-mentioned markets is crucial for at least two reasons. First, Israel would certainly, and Ukraine would very likely, be able to operate with above-average profitability. Second, these markets would absorb capacity from other, lower-profitability routes, which could improve the margin outlook for current operations as well.