Aeroflot - Better Traffic But Lower Yields
We have updated our Aeroflot model in the wake of the company's operating results for 1H17 and given the recent trends in the Russian aviation market and our latest macro forecasts. We anticipate higher traffic growth but cut our yield projections on the stronger ruble in 1H17, and lower our 2017 EBITDA forecasts by 6.5% to R71.5 bln, implying lower margins. However, the impact of the stronger ruble on the bottom line will be limited, as it will be compensated for by a reduction in interest expenses and lower recognized losses from hedging. We forecast net income coming in almost flat y-o-y at R38.8 bln for 2017. We raise our target price to R229 per share, which implies a dividend yield of 8.3% for 2017 (to be paid in 2018), which is attractive, in our view, given expectations of lower interest rates and the positive outlook for the Russian aviation market for 2018 and beyond. However, in light of the recent strong price performance, we downgrade the stock to HOLD.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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