WOOD Flash – Aegean Airlines: 2Q21 – encouraging comments on outlook, fleet transition accelerated

With its balance sheet strengthened by the EUR 60m capital increase and EUR 120m of state aid, and the encouraging summer booking trends, Aegean has moved to accelerate the transition from ceos to neos. This is a key positive for the investment case, as it should help it to retain its competitive unit cost structure, in our view. On pricing, management highlighted that yields remained strong during the summer (comparable to the 2019 levels) and said it expects the net profit in 3Q21 to at least exceed the loss generated in 2Q (EUR 34m). We expected the summer quarter to end in the black, but we were pencilling in a more modest result. In 4Q21E and 1Q22E, Aegean expects to fly some 12-25% lower capacity than pre-pandemic and, so far, it is seeing no evidence of substantial pressure on pricing. While the 2Q21 results came in largely in line with expectations, we see the encouraging comments on pricing during the crucial 3Q, as well as the faster fleet transition ahead, as major positive news for the stock. Likewise, the guidance on the 3Q21 pricing, and the 4Q and 1Q utilisation exceeded our estimates. Autumn and winter are seasonally low periods for Aegean, and the cash burn is likely to re-start during 4Q21E and 1Q22E. Additionally, we cannot rule out that the number of COVID-19 cases could start to rise again in the EU and Greece, which could affect the demand adversely, and put the share price under pressure in the near term. That said, with low indebtedness, ample liquidity, and exposure to the leisure, short-haul segment, we believe Aegean is well-positioned to reap the full benefits of the eventual recovery of traffic. At a little over 4x EV/EBITDA on the consensus 2022E, the stock is trading at a discount vs. its peers – even though we would not advise to focus too much on this multiple, given the limited visibility on the 2022E earnings.