EMEA Airlines: A crowded field (transferring coverage of Aegean Airlines (BUY), Aeroflot (HOLD) and Turkish Airlines (HOLD); Wizz Air stays HOLD)
We believe that 2020E is shaping up to be a better year for the airlines than 2019E. Gradually, consolidation should lead to more capacity discipline and better pricing. Furthermore, thanks to the sector-wide deleveraging that has taken place over the past decade, European airlines are generally more robust. That said, we do not believe we are out of the woods, yet. We expect capacity to grow by around 4-5% next year, well above the Eurozone growth of 1.0% (Bloomberg consensus). This could translate into another year of intense competition and weak yields. Against this backdrop, our preferred pick is Aegean (BUY, 12M price target (PT) EUR 10.8/share). With its steady earnings, generous (8%) dividend yield, net cash balance sheet, efficient operations (25-30% ROE) and compact size (c.EUR 600m market cap), we believe it could be an attractive acquisition target for the larger European airline groups. Although we like Wizz Air (HOLD, 12M PT GBP 43/share), the Bloomberg consensus leaves little room for positive surprises and, following the strong share price performance (up 38% ytd), the near-term upside could be limited, we believe. We see Aeroflot (HOLD, 12M PT RUB 102/share) as attractively valued at current levels; however, we would like to see more evidence that the upcoming growth will be executed profitably before we recommend to BUY the shares. Turkish Airlines (HOLD, 12M PT TRY 15.1/share) is the highest beta of the companies we cover in this report. With the MAX grounded, the delayed Airbus aircraft and the move to the new airport, 2019 has been a perfect storm for Turkish Airlines. While we expect 2020E to be substantially better, as growth resumes and margins improve, with the high leverage (4x net debt to EBITDA), we see it as a too risky bet against a weaker global growth backdrop, despite the share price weakness we have seen throughout this year.Aegean Airlines is an airline carrier based in Greece. Co. is engaged in aviation transportation, providing services that concern the transportation of passengers and commodities in the sector of public aviation transportation inside and outside Greece, conducting scheduled and unscheduled flights. Co. provides full service, premium quality short and medium haul services. Co. maintains a network of 145 destinations, 111 international in 45 countries and 34 domestic destinations. Co. is a member of global airline network, the Star Alliance network.
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.
Turk Hava Yollari is engaged in the airline industry with the airline flying to 103 destinations, throughout Turkey and internationally. As of the year end, Co. maintains 66 aircrafts with a total seat capacity of 10,672, and leases a A300-200 cargo aircraft. Co. has various services for their customers which include: various ways of checking in and on-line ticket sales.
Wizz Air Holding is a European airline. As of Mar 31 2017, Co. provided more than 500 routes from 28 bases, connecting 141 destinations across 42 countries. Co. has two reportable segments: the airline and the tour operator business units, marketed under the Wizz Air and Wizz Tours brand names, respectively. Wizz Air sells flight tickets and related services to external customers and, to an extent, to Wizz Tours. Wizz Tours sells travel packages to external customers covering the network of Wizz Air.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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