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Initiation of Coverage: SAHCO - Conquering aviation handling a flight at a time

SKYWAY AVIATION HANDLING COMPANY PLC (SAHCO)                                                                             

Conquering aviation handling a flight at a time                                                                

We initiate coverage on Skyway Aviation Handling Company, with a target price of ₦5.03. We derived our target price using a Discounted Cash Flow model based on earnings from its Ground handling and Cargo businesses over a 2018-2022 forecast period (at current capacity). We are positive about the long-term growth capacity of the company given the expected growth in its cargo business, increase in the company’s client base and improvements in the broader sector.                                                                 

Underdeveloped aviation sector provides upside                                                                          

Though the Nigerian aviation sector has experienced significant growth since liberalization, the sector in the country is still largely underdeveloped with significant room for expansion. This is common with this sector across Africa, with the low level of current air travel passengers compared to the population and size of the economy. Total passenger traffic in Nigeria has declined 4% since 2010 to 13.4 million passengers as at 2017 (7.4% of the population), compared to 19% growth in South Africa. This presents a huge upside for the aviation industry and its support industries.                                                                 

Poised to lead air cargo growth                                                                

The company’s ultra-modern cargo warehouse, procurement of advanced handling equipment, globally recognized certifications and investments in staff training, has positioned SAHCO as the premier handler in Nigeria’s cargo handling business, posting consistent and significant growth in market share (from 25% in 2013 to 44% in 2017). SAHCO also holds strong margins in the cargo segment of the business, with gross margin in this segment at c.60% compared to the ground handling segment with a gross margin of c.45%.                                                                        

Future infrastructure investments to drive expansion                                                                  

Given the current infrastructural deficit in the industry, Nigeria needs to make provision, in its annual budget, for investments in modern aviation infrastructure in order to cater to the increasing number of air travelers. We highlight the recent commissioning of the new Port-Harcourt International Terminal and construction of new terminals at the Nnamdi Azikiwe International Airport and Murtala Muhammed International Airport Lagos.