Aegean Airlines Outperform (from Outperform) Mkt. Price: € 6.5 Travel & Leisure High Risk (from High Risk) Target Price: € 8.5 FTSE MI: 462.61 Equity Research | Update Changes Target price of which DPS Previous € 9.50 Total stock return 31.2% Valuation 2014a 2015e 2016e 2017e P/E 5.8x 8.2x 6.4x 5.6x P/BV 2.1x 2.0x 1.8x 1.6x EV/Sales 0.3x 0.3x 0.2x 0.2x EV/EBITDA 2.7x 3.3x 2.1x 1.6x EV/EBIT 3.0x 3.9x 2.4x 1.8x Dividend yield 11.2% 7.9% 10.1% 11.6% FCF yield 19% 25% 35% 41% Per share EPS 1.12 0.79 1.01 1.16 EPS old 1.12 1.12 1.22 1.18 DPS 0.73 0.52 0.66 0.76 BS data (€m) Sh. Equity 216 236 262 291 Net debt -149 -181 -220 -252 P&L data (€m) Revenues 912 948 999 1,055 EBITDA 119 86 117 132 EBIT 106 73 104 119 Net income 80 57 72 83 Trading data 1m 3m 6m 12m Rel. Performance 8.5% 12.2% 11.3% 8.5% Abs. Performance 5.7% -10.3% -13.3% 5.7% H | L 52w € 8.1 € 5.0 Market cap. (mn) € 464.2 Shares outstanding (m): 71.4 Free float (%, mn) 39% € 181.5 Avg. vol. Traded (52w): 97.45k Index constituent & weight: ASE (1.9%), FTSE LC (1.32%), FTSE MI (1.26%) Antonis Diapoulis, Analyst [email protected]T +30 210 367 7532, +30 210 367 7513 Please refer to important disclosures in the Disclosure Appendix Aegean Airlines is a Greek commercial full service aircraft carrier that operates scheduled and charter routes to Greek (domestic) and international destinations. Alpha Finance does and seeks to do business with companies covered in its research reports. Consequently, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. September 4, 2015 RIC: AGNr.AT, BBG: AEGEAN GA Rating - TP EPS € 8.5 € 0.66 Evasive maneuvers successful! Re-iterate ‘Outperform’ Aegean lived the drama of the sharp downturn in the Greek economy after the capital controls were imposed on June 26 th . The impact in terms of yields is expected to be severe (AFe FY 15e -9% y-o-y) but should be partly counterbalanced by strong traffic (July passengers up 19% y-o-y - AFe FY 15e +13.2% y-o-y). During the first three weeks the capital controls were imposed, Aegean planes were flying with good load factors as more of the tickets were pre sold. Thus, the lack of pre-booking caused by the adverse conditions in the local banking system did not have an initial effect. In order to reboot the demand in the market Aegean was forced to put additional pressure on pricing especially in domestic destinations. Additionally, demand from international travelers resumed normal levels quite fast in July as the risk was contained when Greece agreed on a new bailout. The company also exploited the inability of its biggest competitor (Ryanair) to accept Greek customers’ credit cards during the high demand period of July due to the capital controls situation. Overall, tourism showed a significant resilience with the overall effect being moderate for Aegean. Therefore, we believe that if a pro-bailout coalition government is formed in upcoming September 20 th national elections, economic stability will gradually return and tourism is set for a very strong 2016. Aegean will find itself at a pole position against completion ready to absorb increased demand. Target price @ €8.4/share We have adopted a positive scenario for the economy as our base case, but potential investors should be cautious as the outlook for Greece is still weak.Our new target price is achieved by lower WACC (11.8% vs. 13.2% previously) but also downgrading our midterm estimates. Our EPS downgrade stands at -29% for 2015 and -14.7% for 2016 on the back of lower passenger yields. Trades at discount It comes as no surprise that Aegean currently trades at a huge discount of 66% in 15’ EV/EBITDA terms compared to its EU peers. Investors discount negatively the Greek economic outlook and the uncertainty generated by the upcoming snap elections. New Assumptions In a snap, a) we increased 2015 fleet to 58 from 57 but kept our long term estimate to 58 planes, b) adjusted 2015 on the back of recent events by setting passenger yields down 9% (vs. AFe old -5%) and passengers to 11.4mn vs. AFe old 11.69mn, c) revisited our cost assumptions adjusting oil estimates (2016 hedge at $60- 20/barrel vs. $ 75-77 in 2105 -- l/t EBITDAR margin 16-17% vs. AFe old 17% and CASK CAGR 14/17e -3.9% vs. AFe old 1.2%). 1H 15 snapshot Revenues, EBITDAR, EBITDA and net income came at €403.6mn (+6% y-o-y, AFe €402.2mn), €67mn (+-8.4% y-o-y, AFe €66.6mn), €19.7mn (-33% y-o-y) and €14.8mn (-8% y-o-y AFe €11.6mn) respectively. Yields retreated by 8% y-o-y and load factors were down 2.7% annually to 73.4% (RPK/ASK). Traffic was up 15% y- o-y to 4.9mn (2.5mn domestic +10% y-o-y - 2.4mn international +20% y-o-y). FCF was positive by €130.8mn vs. €113.9mn in 1H 14. 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 0 100 200 300 400 N-14 J-15 F-15 A-15 M-15 J-15 M-15 52w performance Vol traded (,000s shares) LH scale Adjusted price
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Please refer to important disclosures in the Disclosure Appendix
Aegean Airlines is a Greek commercial full service aircraft carrier that operates scheduled and charter routes to Greek
(domestic) and international destinations.
Alpha Finance does and seeks to do business with companies covered in its research reports. Consequently, investors should be aware that the firm may have
a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment
decision.
September 4, 2015
RIC: AGNr.AT, BBG: AEGEAN GA
Rating - TP EPS
€ 8.5
€ 0.66
Evasive maneuvers successful! Re-iterate ‘Outperform’ Aegean lived the drama of the sharp downturn in the Greek economy after the capital controls were imposed on June 26th. The impact in terms of yields is expected to be severe (AFe FY 15e -9% y-o-y) but should be partly counterbalanced by strong traffic (July passengers up 19% y-o-y - AFe FY 15e +13.2% y-o-y). During the first three weeks the capital controls were imposed, Aegean planes were flying with good load factors as more of the tickets were pre sold. Thus, the lack of pre-booking caused by the adverse conditions in the local banking system did not have an initial effect. In order to reboot the demand in the market Aegean was forced to put additional pressure on pricing especially in domestic destinations. Additionally, demand from international travelers resumed normal levels quite fast in July as the risk was contained when Greece agreed on a new bailout. The company also exploited the inability of its biggest competitor (Ryanair) to accept Greek customers’ credit cards during the high demand period of July due to the capital controls situation. Overall, tourism showed a significant resilience with the overall effect being moderate for Aegean. Therefore, we believe that if a pro-bailout coalition government is formed in upcoming September 20th national elections, economic stability will gradually return and tourism is set for a very strong 2016. Aegean will find itself at a pole position against completion ready to absorb increased demand. Target price @ €8.4/share We have adopted a positive scenario for the economy as our base case, but potential investors should be cautious as the outlook for Greece is still weak.Our new target price is achieved by lower WACC (11.8% vs. 13.2% previously) but also downgrading our midterm estimates. Our EPS downgrade stands at -29% for 2015 and -14.7% for 2016 on the back of lower passenger yields. Trades at discount It comes as no surprise that Aegean currently trades at a huge discount of 66% in 15’ EV/EBITDA terms compared to its EU peers. Investors discount negatively the Greek economic outlook and the uncertainty generated by the upcoming snap elections. New Assumptions In a snap, a) we increased 2015 fleet to 58 from 57 but kept our long term estimate to 58 planes, b) adjusted 2015 on the back of recent events by setting passenger yields down 9% (vs. AFe old -5%) and passengers to 11.4mn vs. AFe old 11.69mn, c) revisited our cost assumptions adjusting oil estimates (2016 hedge at $60-20/barrel vs. $ 75-77 in 2105 -- l/t EBITDAR margin 16-17% vs. AFe old 17% and
CASK CAGR 14/17e -3.9% vs. AFe old 1.2%). 1H 15 snapshot Revenues, EBITDAR, EBITDA and net income came at €403.6mn (+6% y-o-y, AFe €402.2mn), €67mn (+-8.4% y-o-y, AFe €66.6mn), €19.7mn (-33% y-o-y) and €14.8mn (-8% y-o-y AFe €11.6mn) respectively. Yields retreated by 8% y-o-y and load factors were down 2.7% annually to 73.4% (RPK/ASK). Traffic was up 15% y-o-y to 4.9mn (2.5mn domestic +10% y-o-y - 2.4mn international +20% y-o-y). FCF was positive by €130.8mn vs. €113.9mn in 1H 14.
Technical Terms Glossary: A) ASK Available Seat Kilometres. Represents the number of seats available for scheduled passengers multiplied by the number of kilometres those seats are flown. B) RPK Revenue Passenger Kilometres; the number of revenue passengers carried multiplied by the distance flown in kilometres. C) RASK Revenue per Available Seat Kilometre. Revenue refers to revenue from passenger traffic (per available seat kilometre). D) Yield Overall yield is calculated as total traffic revenues (passenger and cargo) divided by overall RTK (passenger and cargo). Passenger yield is passenger traffic revenue per RPK, and cargo yield is cargo and mail traffic revenue per cargo and mail RTK.
Alpha Finance Equity Research Aegean Airlines
Please read important disclosures at the end of the report. 5
ALPHA FINANCE INVESTMENT SERVICES S.A. (‘Alpha Finance’) Headquarters: 5, Merlin Street, GR – 106 71 Athens, www.alphafinance.gr T +30-210-367 7400, F +30-210-331 1193, [email protected] Ministry of Development, S.A. Registration Number: 19420/06/B/89/01, G.E.MI.1176701000 Regulated by the Hellenic Capital Market Commission, License No. 42/13.04.1989
Analyst Certification The research analyst(s) undersigned and responsible for the preparation of this report certify (-ies) that a) the views expressed in this report accurately
reflect their (his/her) personal views about any and all of the securities or issuers mentioned in this report and b) no part of the analyst’s compensation
was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Analysts receive compensation
based upon various factors, including the quality and accuracy of research, productivity, experience, individual reputation, competitive factors and feedback
from clients.
Company specific regulatory disclosures
Disclosure checklist for companies mentioned & other price data information
Reuters Rating Price Price date/time Disclosure
Aegean Airlines AGNr.AT Outperform €6.5 Official close @ 4 September 2015 none Source: Alpha Finance 1. Alpha Finance and/or its affiliate(s) has acted as manager/co-manager/adviser in the underwriting or placement of securities of this company within the
past 12 months 2. Alpha Finance and/or its affiliate(s) has received compensation for investment banking services from this company within the past 12 months
3. Alpha Finance makes a market in the securities of this company
4. Alpha Finance and its affiliate(s) owns five percent or more of the total share capital of this company
5. The company and its affiliate(s) owns five percent or more of the total share capital of Alpha Finance and its affiliates
6. Alpha Finance has sent the research report to the company prior to publication for factual verification
7. Following 6, Alpha Finance has changed the contents of the initially sent research report, with respect to: no change
8. Alpha Finance has received compensation from the company for the preparation of this research report
Major changes vs. previous research reports
Date of report Price on report date (€) TP (€) Rating Forward1 EPS (€)
9-5-2015 7.50 9.5 Outperform 1.12
Source: Alpha Finance | 1: next year’s EPS used from December onwards Ratings and target price history
Price chart for Aegean Airlines Rating history for Aegean Airlines
DATE Rating Share Price (€) Price Target (€)
23/03/2011 neutral 2.01 2.00
05/09/2011 neutral 1.63 1.90
24/11/2011 neutral 1.57 1.90
06/04/2012 neutral 1.38 1.60
09/05/2012 neutral 1.32 1.27
30/11/2012 neutral 1.70 2.00
15/10/2013 outperform 5.02 6.00
23/12/2013 outperform 5.90 8.50
15/09/2014 outperform 6.82 10.00
22/09/2014 outperform 7.70 9.30
09/04/2015 outperform 7.54 9.50
04/09/2015 outperform 7.54 8.50
Regulatory disclosures This report has been prepared by Alpha Finance Investment Services S.A. (‘Alpha Finance’), a wholly owned subsidiary of Alpha Bank A.E. Alpha Finance is
regulated by the Hellenic Capital Markets Commission (HCMC). Alpha Finance has in effect management policies to identify and confront potential conflicts
of interest that could arise in the research division of the company and/or its affiliates (“Chinese Walls”).
Valuation method We value Aegean airlines through a DCF models to yield a 2015 target price of €8.5. Our valuation methodology is sensitive to oil, passenger traffic
volatility, macroeconomic conditions and all the risks associated with the airline business. For our DCF model for Aegean airlines we have assumed a
variable WACC rate of c.11.8%, a terminal value of 0.5% and a beta of 1.
Risk rating We rate Aegean as high risk based on the qualitative/quantitative assessment of risk we apply on the company (see definitions of risk below). We consider the following the biggest investment risks for the shares Airline Industry Related: a) Geopolitical concerns, b) seasonality, c) terrorist events, d) sensitivity to tourist traffic, e) any obstacles in the merge with Olympic, f) LCCs intensifying domestic competition, g) domestic competition from non – air transportation, h) airport slot availability. Business Model related: a) Fleet restructure execution risk, b) international expansion to increase fuel usage and maintenance costs, c) progression of load factors in new routes, d) possible overcapacity in international routes, d) EU regulation on greenhouse gas emissions could pose additional costs in the future and e) climate change could negatively affect tourist traffic to Mediterranean destinations. Macroeconomic related: a) Foreign exchange risk, b) increasing oil prices, c) the current economic environment in Greece.
Definitions of Fundamental and Risk Ratings and Allocations
RISK RATING Low (L) Medium (M) High (H) Relative to Horizon2 Coverage3 IB services4
FU
ND
AM
EN
TA
L
RA
TIN
G
Outperform O/P TRP1 > +5% TRP1 > +15% ASE Index Dec.’11 10/50 10.0%
Restricted (G) R(G) Alpha Finance belongs to the same group of companies 1/50 0.0%
Restricted (IB) R (IB) Alpha Finance is currently rendering investment banking services 0/50 0.0%
Under review UR/ Not rated NR No rating currently available 19/50 0.0%
Source: Alpha Finance | Data as of 31.12.10 | 1: Total Return Potential (=capital return + dividend yield) | 2: except otherwise stated | 3: Percentage of companies under coverage within this category as of 31.12.10 | 4: Percentage of companies within this rating category for which investment banking services were provided over the past 12 months, as of 31.12.10. In several occasions, subject to the analyst's view and/or due to volatility of the shares, the ratings applied may fall out of the brackets described in the table above. The Alpha Finance universe consists of 50 companies accounting as of 31.12.10 for 79.9% of total market value
Risk ratings explained We derive the overall risk rating for a stock by applying a 60% weight on quantitative and a 40% weight on qualitative factors. We use a scale from 1 to 3
to describe ‘low, ‘medium’ and ‘high’ risk respectively. We compute two different quantitative risks namely liquidity and volatility. We assign equal weights
to liquidity and volatility risks to arrive at a so-called trading or quantitative risk for the specific stock researched. Using a scale of 1-to-3 scale, each
analyst also assigns a qualitative risk that is entirely up to his/her discretion to determine. Following this, we calculated the combined risk of the specific
stock applying the weights mentioned earlier. All IPOs are classified ‘high risk’ for 12 months after their listing date.
Definitions of Risk Ratings
Quant factor Definition Brackets Risk rating
Liquidity Number of shares traded over the last 12 months as % of total shares outstanding
If less than or equal to 33% High If greater than 33% but less than or equal to 66% Medium If greater than 66% Low
Volatility
The standard deviation of daily changes during the last 12 months. Volatility is used as a statistical measure of dispersion and indicates the propensity of a specific equity to suffer large swings in price. The stock’s volatility is measured against the volatility of the ASE index
If equity volatility against the market’s is greater than 2 High If equity volatility against the market’s is greater than 1.5 but less than or equal to 2
Medium
If equity volatility against the market’s is less than or equal to 1.5
Low
Source: Alpha Finance | Data as of 31.12.10 | The quant factors are updated at the end of each calendar quarter
General disclaimer This report has been prepared by Alpha Finance.
This report by no means provides investment advice as to any financial instruments contained herein. We aim to express our value judgments as to
possible or existing investments, without any existing contractual obligation to our clients. We cannot assume any liability for any investments undertaken
by our clients, since these investments will be a product of their own free will. The information contained in this report has been taken from sources,
which we deem to be reliable. We do not represent that such information is accurate or complete and it should not be relied upon as such. All opinions
and estimates expressed herein constitute our judgment as of this date and are subject to change without notice. Past performance is not indicative of
future results. The opinions and recommendations herein do not take into account individual client circumstances, objectives or needs. This report is
published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial
Finance and Alpha Finance accepts no liability whatsoever for the actions of third parties in this respect.
Alpha Finance Equity Research Aegean Airlines
Alpha Finance Investment Services S.A.
Member of the AE, CSE 5 Merlin street, 106 71 Athens Greece
T +30-210-367 7400 F +30-210-331 1193 [email protected] www.alphafinance.gr
Equities Research Manousos Stathoudakis, Director Antonis Diapoulis Angelos Chorafas Nikos Katsenos Katia Zahari [email protected] T +30-210-367 7545
Sales & Trading Spyros Malavazos, Director Equities Sales | Foreign Institutions Natasa Martseki, Director Vassilis Galleos Ioannis Batistakis Equities Sales & Trading | Institutions Kostas Tzimos Maria Vryoni Giota Kouli Chris Xikis Derivatives Sales & Trading Lefteris Syrrakos, Director Andreas Markogiannis Angelos Kostis Stavros Tsimpos Equities Trading | Retail Andreas Tzevelekos, Head Maria Saranti
Market Making | Equities & Derivatives Andreas Papanayotopoulos, Director Stelios Tzaras International Markets | Sales & Trading Andreas Papanayotopoulos, Director Giannis Giouremos George Sarris Sofia Giannakou
Equities Sales | Retail Pantelis Tsitos, Director Kostantinos Kostoulas, Deputy Director Leonidas Kyriakopoulos Stavroula Galani Lazaros Koutromanos Kleanthis Schinas