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Aegean Airlines | Maintaining altitude

Record Q3’23 figures… – Aegean achieved a record EBITDA of €228m in Q3'23, some +35% above the respective 2019 period, leveraging on outstanding revenue growth (>28% above Q3’19). This came as a result of strong pricing (fares +21% vs Q3’19) and healthy volumes (traffic +7% vs Q3’19 and load factor >85% nearing Q3’19 peak levels). As a result, net profit stood at €133.6m in the quarter leading to >€170m net profit in the 9-month period. Cash generation has stayed solid, with Aegean increasing its net cash (ex-leases) position by a substantial >€270m vs Dec’22 to €535m.

…lead to 17% upgrade in our 2023e EBITDA forecast… – We have raised our 2023e revenue forecasts by c3% (to €1.68bn, +25.7% yoy) thanks to a better-than-expected translation of capacity into traffic figures and strong pricing (fares c22% higher than in 2019, with RASK +5% yoy). On the cost front, we reflect in our forecasts the higher than anticipated decline in fuel unit costs, now eyeing 2023 CASK (EBITDAR level) at €6.4cents (-0.7% yoy). Overall, we have lifted c17% our 2023e EBITDA to >€400m, indicating 51% yoy growth (+54% vs 2019). As a result, our net profit forecast increases to €160m, +49% yoy.

… but we lower 2024-25e 8-12% on elevated costs and potential of yield reversal – Looking ahead, we prefer to maintain a more conservative stance due to the low visibility stemming from geopolitical tensions and the hike in costs from the grounding of Airbus neo fleet for engine maintenance. Against this backdrop, we reduce our EBITDA forecasts by c8-12% in 2024-25e, thus envisaging a decline in 2024e EBITDA to €365m (-12% yoy, but still +35% vs 2019) before a bounce in 2025 (+5% yoy). On the revenue front, we model a 4-8% revenue growth in 2024-25 respectively, anticipating c6% passenger growth (partly owing to an uptick in load factors in 2024) partly offset by slightly lower fares in 2024 and a small increase in 2025. We estimate that a 1% rise in yields results in €35m variation in 2024e EBITDA, something which indicates upside risk to our numbers if Aegean is successful in taking pricing to recover part of the higher costs resulting from the engines issues.

Balance sheet getting even stronger – Aegean has strengthened further its already healthy balance sheet, with the buyback of the warrants (€85m) absorbing only a smart part of liquidity. FCF generation continues unfettered, with Aegean set to generate c€25m FCF in 2023e, despite the fleet investments (>€120m in total). With mgt having already communicated its intention to resume dividend payments, we have penciled in a €0.35 DPS (30% payout).

Valuation – In the light of the normalization of Aegean’s profits post COVID, we have switched back our valuation to a DCF (10% WACC). Our model returns a 12-mth PT of €13.8. Despite the >120% ytd rally, the valuation remains attractive at c5.5x 12-mth fwd EV/EBITDAR, namely within the long-term average 5-6x historic range, as profits have also surged in tandem. We believe the stock can move higher in the valuation spectrum given its best-in-class margins, high FCF generation & strong balance sheet.