Aeroflot - The Pendulum Swings Back
The past two years have been painful for Aeroflot, as excess capacity among Russian carriers has prevented yields from rising enough to offset mounting costs. However, we believe that most of the negatives are already priced in the stock, and the recent challenges should result in improved cost discipline going forward. With this report, we restate our financial projections following the publication of the company's first financials using the IFRS 16 standard and in light of further clarity over fuel prices (as jet fuel has been added to the government's damper excise rebate program, plus the company is hedging again in 2H19). We also switch to a new valuation methodology that is more compatible with IFRS 16 and explain why we see it as such. We raise our cum-dividend target price to R155 (including the next 12m dividend yielding 7%) and upgrade Aeroflot to BUY.PJSC Aeroflot Russian Airlines is an international air transport company which is engaged in operations in Russia. The principal activity of Co. is the provision of passenger and cargo air transportation services both domestically and internationally and other aviation services from its base at Moscow Sheremetevo Airport. Co. and its subsidiaries also includes activities comprising airline catering, the operation of a hotel and insurance services. Associated undertakings mainly comprise hotel and duty-free retail businesses. The principal business segments are airline operations, airline catering, hotel operations and other.
Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.
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