GREECE | EQUITY RESEARCH | AIRLINES
March 27, 2017
COMPANY UPDATE
AEGEAN AIRLINES Recommendation BUY Target Price €8.20 Stay on board Prior Target Price €8.00
Positive finish to a mixed year – Aegean reported a quite resilient Q4, managing to Closing Price (24/03) €6.87 sustain EBITDAR at the same level as in Q4’15 on the back of a substantial Market Cap (mn) €490.6 improvement in load factors (+5.9pps in Q4). The traffic increase in Q4 (+19%) exceeded the capacity expansion (+10%) and was only partly diluted by fare Expected Return 19.4% discounting (yields -12%) leading to a 5% increase in revenues. Overall, FY16 was a Expected Dividend 6.9% year of swings, and although the c€26m drop in Aegean’s EBITDAR in H1 was not fully Expected Total Return 26.2% recovered in H2 (€15m higher yoy), the finish to the year was stronger than anticipated while the solid pre-booking pattern for summer 2017 instills us with AEGEAN Share Price confidence that FY17 will be a positive year. 9.50 Positive FY17 outlook: capacity discipline and demand resilience – The 2017 outlook 9.00 is looking more benign as Ryanair shifts its focus to other markets and Aegean 8.50 rationalizes capacity (-5%). Trends in the first two months have been positive with demand growth (traffic in Greek airports +7% yoy) outstripping supply (flights -1%). 8.00 With pre-booking patterns for the summer program providing additional confidence 7.50 in Q2 trading, we believe load factors will be strong in FY17, while the pricing 7.00 required to stimulate demand will be less pronounced (yields -3%) than in 2016 (yields -8%). On the cost side, we do see some room for a reduction in distribution 6.50 costs as Aegean shifts away from the GDS platforms. We thus incorporate further – 6.00 albeit of small magnitude – cost efficiencies in FY17e (CASK ex-fuel -1%). As far as fuel 5.50 is concerned, besides having hedged its FY17 needs (75% at c$490/mt), Aegean has Mar-16 Jul-16 Nov-16 Mar-17 also hedged a portion of its FY18 fuel needs (40% at c$520/mt), fact that increases
visibility of 2018 numbers. Our future fuel forecasts are in sync with the forward curve. Overall, following minor changes to our forecasts, we expect Aegean to deliver Stock Data c2% growth in EBITDAR translating into net profit of €48m, €16m higher yoy. Reuters RIC AGNr.AT
Compelling dividend story – Given our forecast for EBITDA of c€84m-97m in the next Bloomberg Code AEGN GA 3 years (vs. €119m at the peak of 2014) and relatively limited capex, we forecast cumulative FCF >€180m, namely >35% of the current market cap. Taking into account 52 Week High (adj.) €9.06 mgt’s past guidance for a dividend payout ratio of 60-70%, we anticipate DPS of 52 Week Low (adj.) €5.84 another €1.5 cumulatively in the next 3 years. This chimes in well with the consistency that Aegean has shown in rewarding shareholders (€2.8 distributed in the Abs. performance (1m) 3.8% last 4 years) and renders Aegean one of the highest-yielding stocks in our universe. Abs. performance (YTD) 8.5%
Valuation – Although the shares have bounced back from the recent lows following Number of shares 71.4mn the short-term disappointment from the Q2 results, we still believe the valuation is Avg Trading Volume (qrt) 0.5k quite compelling as Aegean trades at substantial EV/EBITDAR discount to EMEA Est. 3yr EPS CAGR 18.6% carriers. Our PT (blended valuation using DCF at 10.5% WACC and multiples) values Free Float 34%
Aegean at <6x 2017e adj. EV/EBITDAR, namely still c25% discount to the current valuation of EMEA carriers (Turkish carriers and Air Arabia). Analyst
Estimates Stamatios Draziotis, CFA EUR mn 2015a 2016a 2017e 2018e 2019e Research Analyst Revenues 983.0 1,020.3 1,016.9 1,008.4 1,025.4 Tel: +30 210 37 20 259 EBITDAR * 217.3 206.9 211.9 207.4 222.4 E-mail: [email protected] EBITDA adj. 111.2 76.8 87.7 83.8 96.7 Net profit - reported 68.4 32.2 48.1 46.3 55.7 Head of Research EPS - reported 0.96 0.45 0.67 0.65 0.78 Tel: +30 210 37 20 257 DPS 0.70 0.40 0.47 0.45 0.55
Sales Valuation Tel: +30 210 37 20 119/ 146 2015a 2016a 2017e 2018e 2019e
P/E 8.0 14.7 10.2 10.6 8.8 Trading EV/EBITDAR adj.* 5.0 5.8 5.3 5.3 4.9 Tel: +30 210 37 20 140/ 146 Net Debt/EBITDAR adj.* 2.7 3.4 3.0 3.0 2.7 Dividend Yield 10.0% 5.8% 6.9% 6.6% 7.9% See Appendix for Analyst Certification and important disclosures ROE 28.6% 14.3% 18.9% 17.1% 19.3%
*Operating leases capitalized at 7x annual lease payment.
AEGEAN AIRLINES March 27, 2017
Table of Contents Investment case ...... 3 Valuation ...... 4 Q4 and FY’16 review: Positive end to a year of swings ...... 6 FY16: Demand vs. supply balance gradually improved since end Q2’16 ...... 8 FY17 outlook: Capacity discipline to underpin load factors and yields ...... 9 Costs – ongoing streamlining ...... 12 Estimates update ...... 14 Assumptions ...... 15 Quarterly results summary ...... 16 Risks and sensitivities ...... 17 Brief company description ...... 18 Aegean in 4 charts and a table ...... 18 Group Financial Statements ...... 19
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AEGEAN AIRLINES March 27, 2017
Investment case
Turbulence in Q2’16 proved Notwithstanding the fact that capacity deployment in 2016 was less pronounced than in short-lived 2015, the balance between supply and demand in Q2 was negative as the latter was somewhat softer than initially envisaged. As a result, substantial fare discounting was required to stimulate demand, putting severe pressure on yields in Q2 (-13% for Aegean). Nonetheless, as we had argued in our detailed report in September 2016, trends showed signs of improvement in the summer assisted by improving inbound leisure traffic and capacity discipline (the number of flights increased by just 3.4% in H2’16). Although the c€26m drop in Aegean’s EBITDAR in H1 was not fully recovered in H2 (€15m higher yoy), the finish to the year was stronger than feared after the disappointing Q2 while the solid pre- booking pattern for summer 2017 instills us with confidence that FY17 will be a positive year.
Capacity discipline in 2017 and For 2017, the competitive dynamics look relatively benign. Although supply is set to grow in relatively resilient demand are the mid single-digits, Aegean’s main competitor Ryanair has announced it plans to scale back omen for the bottoming of its capacity deployed in Greece (Summer 2017 -2%, Winter 2017 -22% in AIA). Aegean itself yields… has guided for a 5% reduction of its own capacity (in terms of seats) as a result of the reallocation of international seats from regional airports to AIA and fewer seats deployed in domestic routes. According to the Association of Greek Tourism Enterprises (SETE), the growth in demand is likely to outstrip the growth in supply thus leading to an improvement in load factors. In our view, the aforementioned discipline in capacity along with the improving inbound leisure trends are likely to help load factors retain their recent upward trajectory (+3pps in H2’16) on reasonable fare discounting, so long as there is no major disruption to demand. Overall, we incorporate yields -3% in 2017 following -8% in 2016, driving a 3.3pps increase in load factors leading to a stabilization of revenues.
… underpinning a recovery of On the cost side, with unit costs at just €6c, Aegean’s cost base is almost as efficient as that of margins in FY17e low cost carriers (LCCs). Looking ahead, we do see some room for a reduction in distribution costs as Aegean shifts away from the GDS platforms utilizing alternative systems and/or increasing direct selling. We thus incorporate further – albeit of small magnitude – cost efficiencies in FY17e (CASK ex-fuel -1%), leading to EBITDAR of €212m, +2% yoy on 50bps higher margins. As far as fuel is concerned, the Brent price has come off recently from c$55- 56/bbl in February to c51-52$/bbl now. Given Aegean’s hedges, we estimate a slight decline in fuel unit costs in 2017e following c18% drop in 2016. Our future estimates for Aegean’s unhedged position are predicated on c$52/bbl Brent price, broadly in sync with the forward curve. Each $5/bbl movement in the Brent price translates to a c2-5% movement on 2017-18e EBITDAR.
Pure play on incoming leisure Aegean is the purest Greek play on international inbound tourism with long-term traffic travel growth prospects remaining firm. Besides underlying traffic growth, there is also plenty of scope for share gains given that Aegean’s share in the international market from Greece is still significantly lower than the typical >30% for the largest carrier in other European markets.
Consistent in rewarding Despite the various challenges that air carriers face (e.g. high fixed cost base, seasonality, shareholders vulnerability to one-off events and oil price fluctuations), the business model is inherently cash generative given that customers pay for tickets in advance. As a result, cash conversion (OCF/EBITDA) has ranged between 64% and 96% in the last 3 years (post the Olympic acquisition). Looking ahead in FY17-19e, given our forecast for EBITDA of c€84m-97m in the next 3 years (vs. €119m at the peak of 2014) and relatively limited capex (c€5m maintenance plus €10.4m outflow related to the Olympic acquisition in 2017e), we forecast cumulative FCF in excess of c€180m, namely >35% of the current market cap. Taking into account mgt’s past guidance for a dividend payout ratio of 60-70% (provided that the cash position is at least €150-200m), we anticipate DPS of another c€1.5 cumulatively in the next 3 years. This chimes in well with the consistency that Aegean has shown in rewarding shareholders (€2.8 per share distributed in the last 4 years) and renders Aegean one of the highest-yielding stocks under our coverage (at least 7% yield).
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AEGEAN AIRLINES March 27, 2017
Valuation
Valuation In the last 4 years, Aegean has traded near 5x adj. EV/EBITDAR on average, although we caution that this includes periods of low valuation due to elevated country risk. Since the end of 2015 the shares have re-rated to levels in excess of 5x on the back of strengthening fundamentals and in anticipation of increased shareholder returns. 2016 was somewhat disappointing from an operational perspective, as a result of a weaker-than-initially envisaged pricing environment, but the drop in the share price was lower than the downgrade to estimates as investors focused more on the improving outlook for H2’16 and 2017. This had an incipient positive impact on the stock’s valuation which rerated to >5.5x after the summer of 2016. Overall, in terms of share price performance, as shown below Aegean has outperformed both the ASE (when adjusting for the c10% dividend yield) and the European Airlines sector since 2016 underpinned by the solid prospects for Greek tourism.
Aegean adj. EV/EBITDAR valuation Share price performance: Aegean, ASE and EU Airlines (rebased)
6.5 x 150 6.0 x 130 5.5 x 5.0 x 110 4.5 x 90 4.0 x 70 3.5 x 50
3.0 x
Jul-16
Jan-17 Jan-16
Jun-16
Oct-16
Feb-16 Apr-16 Feb-17
Sep-16
Dec-16
Aug-16
Nov-16
Mar-16 Mar-17
May-16
Jul-13 Jul-14 Jul-15 Jul-16
Nov-13 Nov-14 Nov-15 Nov-16
Mar-14 Mar-15 Mar-16 Mar-17 Mar-13 Aegean ASE Index European Airlines
Source: Company, Eurobank Equities Research
Given the cyclical nature of the industry, airline stocks’ valuations tend to reflect short-term prospects with investors keen to attach peak multiples for trough earnings (on the expectation of a substantial earnings recovery). At the current juncture, given the positive growth outlook for most airlines which points to an upcycle, multiples are closer to mid-cycle levels. Relative to EMEA carriers and focusing on 2017 numbers, Aegean trades at significant adj. EV/EBITDAR discount. Low cost carriers have traditionally enjoyed higher multiples reflecting higher growth and superior returns, and in this respect, represent the cap for European airlines’ valuation. We emphasize that PE valuations are not too informative as the ratio is impacted by differences in taxation, restructuring charges and non-cash FX gains/losses.
Peer Group Valuation Mcap PE PE EV/EBITDAR EV/EBITDAR FCF yield Dividend yield Stock (EURm) 2017e 2018e 17e 18e 17e 17e Air France-KLM 2,254 5.6x 5.4x 4.0x 3.7x 9% 0% Deutsche Lufthansa AG 7,028 6.5x 6.2x 4.8x 4.4x 4% 3% IAG 13,425 7.2x 6.7x 5.0x 4.6x 8% 4%
easyJet 4,611 12.7x 11.1x 7.4x 7.5x neg 4% Ryanair 17,732 12.6x 11.6x 7.6x 6.6x 3% 0%
Turkish Airlines 1,958 11.9x 4.9x 7.6x 7.1x Neg 0% Pegasus 379 NM 26.2x 8.9x 8.4x neg 1% Air Arabia 1,277 10.2x 9.1x 6.9x 6.2x 16% 7% Weighted Average 9.7x 8.9x 6.3x 5.7x 5% 2%
Aegean 491 10.2x 10.6x 5.3x 5.3x 13% 7%
Source: Eurobank Equities Research, Bloomberg 4
AEGEAN AIRLINES March 27, 2017
Attractive combination of value, We reiterate the view that investors should approach Aegean’s investment thesis in the growth and dividend yield context of an attractive combination of earnings growth and track record of cash returns. With the stock offering FCF yield in the low-teens in 2017-18e and with Aegean already operating at the upper end of the guided net cash position (€150-200m), we expect the bulk of FCF to be distributed to shareholders. This would translate to a potential return >30%of the market cap over 2017-19e. As a result, we think the current valuation offers compelling compensation, especially as we feel that earnings risk for 2017 lies on the upside.
We have updated our numbers following the FY16 results making minor changes to our estimates marking-to-market for fuel and adjusting for Aegean’s capacity guidance. After rolling forward our valuation to March 2018, we have lifted slightly our PT to €8.2 from €8.0 previously. We retain the same blended methodology, as described in the table below. At our PT Aegean would trade at <6x 2017e adj. EV/EBITDAR, namely still c25% discount to the current valuation of EMEA carriers (Turkish carriers and Air Arabia).
Aegean valuation EURmn unless otherwise stated comment DCF DCF fair-value per share 9.2 € WACC 10.5%, mid-term FCF at c€37m vs. c€67m over 2013-19e
EV/EBITDAR
EBITDAR 2017e 212 Multiple 6.0x c25% discount vs. Turkish carriers’ current valuation Target adj. EV (2017e) 1,263 Adj. net debt – av. 2016-17e 666 Operating leases capitalized at 7x Equity value - 2017e 597 No. of shares (mn) 71.4 12-month equity fair value 8.6 €
PE
EPS 2017e (EUR) 0.67 Multiple 10.0x c15% discount to LCCs 2017e fair price 6.7 € 12-month equity fair value (EUR) 6.9 €
12-month Price Target 8.2 €
Source: Eurobank Equities Research
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AEGEAN AIRLINES March 27, 2017
Q4 and FY’16 review: Positive end to a year of swings
Aegean results summary % % EURmn Q4 15a Q4 16a FY 15a FY 16a Q4 16e FY 16e change change Scheduled 163.8 171.1 4% 827.4 870.4 5% 139.3 838.6 Charter 3.7 6.6 78% 45.7 41.4 -9% 10.5 45.3 Other (cargo, service charge, etc.) 23.2 22.8 -2% 109.9 108.6 -1% 30.9 116.7 Revenues 190.8 200.4 5% 983.0 1020.3 4% 180.7 1000.6 All operating costs -172.8 -182.3 6% -765.7 -813.4 6% -180.9 -812.0 - of which fuel -45.9 -41.9 -9% -216.3 -197.3 -9% -37.7 -193.1 EBITDAR 18.0 18.1 1% 217.3 206.9 -5% -0.2 188.5 Margin 9.4% 9.0% 22.1% 20.3% -0.1% 18.8% - Leases -27.1 -35.1 29% -106.1 -130.1 23% -23.4 -118.4 EBITDA -9.1 -17.0 86% 111.2 76.8 -31% -23.6 70.2 - Depreciation -2.6 -3.8 -14.0 -18.0 -2.1 -16.3 EBIT -11.7 -20.7 97.2 58.8 -25.7 53.9 - Net financial income (expense) -2.8 -0.8 3.1 -7.3 1.8 -4.7 PBT Reported -14.4 -21.6 100.3 51.6 -49% -23.9 49.2 - Tax 0.9 2.5 -31.9 -19.4 7.6 -14.3 Net Profit Reported -13.5 -19.1 68.4 32.2 -53% -16.4 34.9 EPS reported (EUR) -0.19 -0.27 0.96 0.45 -53% -0.23 0.49 DPS 0.70 0.40 0.70 0.40 -43% 0.32 0.32 Source: Company, Eurobank Equities Research
Q4 15a Q4 16a % FY 15a FY 16a % Q4 16e FY 16e KPIs change change Passengers '000s International 1260 1481 18% 6025 6738 12% 1284 6541 Domestic 1159 1173 1% 5624 5725 2% 1280 5832 Total 2419 2654 10% 11649 12463 7% 2564 12373
Load factor 74.7% 80.5% 5.9 pp 76.9% 77.6% 0.7 pp 72.5% 75.9% ASK 3.150 3.468 10% 14.668 16.383 12% 3.532 16.447 Traffic (RPK) 2.352 2.793 19% 11.285 12.715 13% 2.562 12.484
Yield 8.3 c 7.3 c -12% 8.9 c 8.1 c -8% 7.3 c 8.1 c CASK 5.7 c 5.4 c -5% 5.3 c 5.1 c -6% 5.3 c 5.0 c CASK ex-fuel 4.2 c 4.2 c -1% 3.9 c 3.8 c -1% 4.2 c 3.9 c Source: Company, Eurobank Equities Research
Strong finish to the year Aegean reported a quite resilient Q4, managing to sustain EBITDAR at the same level as in underpinned by higher load Q4’15 on the back of a substantial improvement in load factors (+5.9pps in Q4). The traffic factors increase in Q4 (+19%) exceeded the capacity expansion (+10%) and was only partly diluted by fare discounting (yields -12%) leading to a 5% increase in revenues. The latter was coupled with the reduction in fuel unit costs (-17% yoy) and a small reduction of ex-fuel unit costs leading to EBITDAR of €18m, flattish yoy.
Overall, this was the second straight quarter of revenue increase on the back of higher load factors reaffirming our view that the Q2 poor performance should not be extrapolated into the future, especially as there seems to be capacity discipline in the Greek airline sector. With Aegean ending the year on a net cash position of €206m and mgt referring to a “rising pre- booking trend” for the summer 2017 season, a decision has been taken to propose a dividend of €0.40 at the upcoming AGM. This is at the high end of expectations (consensus €0.35) and translates to a payout ratio >85%, compared to the normally guided range 60-70%
With respect to the main feedback from the conference call, we would highlight the following: 6
AEGEAN AIRLINES March 27, 2017
- Capacity outlook for 2017: The picture for the key AIA airport is looking quite positive, with international capacity flattish yoy and domestic down. Regional airport overall capacity is likely to be up in the mid single-digits. On its part, Aegean is set to reduce seats by c5% overall, although ASKs are likely to be flat yoy (average stage length will increase on better utilization and reduction of domestic sectors). - Demand trends in 2017: positive start to the year, with the positive trajectory in load factors evidenced in H2’16 (+1.3pp in Q3’16, +5.9pp in Q4’16) continuing in the first quarter of 2017. - Yield outlook: although fares are not declining any more, mgt cautioned that the chance of seeing an increase in international yields in 2017 is “small”. Mgt does not expect yields to increase in domestic routes. - Fleet: Aegean will be operating 3 fewer aircraft in 2017. As for future plans, mgt reminded that it has 6-7 leases expiring every year while the bulk of expirations are between 2019 and 2023 (11-12 expirations in 2020-21). Decisions regarding the fleet should not be expected until the year-end but mgt alluded to a similar financing policy (i.e. mostly operating leases, sale and leaseback and just a few aircraft carried on the balance sheet). - Airport privatisations: mgt does not expect significant impact from the recent privatisation of regional airports, as Fraport has committed to only marginally higher rates for the next 4 years. As for AIA, assuming the concession does get renewed, mgt is only hoping for a small reduction of the quite expensive airport charges. - Hedging: FX: 50% both for 2017-18 at 1.11. The resulting effective FX rate will be c8-9% lower (headwind), we estimate. Aegean has also hedged c22-23% of 2019 needs at 1.13. Fuel: 75% for 2017 at $490/mt and 40% for 2018 at $520/mt. On our estimates, the resulting blended rate will be c5% lower than the effective 2016 level (tailwind). - Costs: mgt does see room for cost rationalisation in 2017 but did not want to commit to a specific target (mainly from distribution).
Overall, this was a quite confident call with mgt cautiously optimistic for the year given the capacity vs. demand balance so far and in view of the supply discipline for summer 2017.
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AEGEAN AIRLINES March 27, 2017
FY16: Demand vs. supply balance gradually improved since end Q2’16
Improving capacity vs. FY16 was a year of swings for Aegean, with Q1 trends being quite promising (yield -5%, demand balance since July EBITDAR only €1m lower yoy) but with Q2 posting a disappointing performance (yield -17%, 2016… EBITDAR -41% yoy) as a result of the mismatch between capacity and demand. The negative backdrop of scheduled supply increases was further exacerbated by the deployment of extra seasonal capacity to Greece (diverted from other destinations on safety reasons) and was coupled with lukewarm demand in the aftermath of the terrorist attacks in Europe. The situation was reversed in Q3/Q4, with demand comfortably outpacing supply growth. We display the aforementioned trends in the following chart, where we show the evolution of passengers vs. number of flights for the Greek airports.
Greek airports – yoy change in number of flights and passengers
25% Strong demand vs. 20% Lukewarm demand moderate capacity = higher load factors 15% growth similar to 10% capacity growth 5% 0%
-5%
Jul-16
Jan-16 Jan-17
Jun-16
Oct-16
Feb-16 Apr-16 Feb-17
Sep-16
Dec-16
Aug-16
Nov-16
Mar-16 May-16
Flights Passengers
Source: HCAA, Eurobank Equities Research, AIA.
… led to a recovery in load In this context, the fare discounting required to stimulate demand was unexpectedly elevated factors and yields in H2’16 in Q2 but moderated in H2’16 on the back of the demand uptick. The following exhibit shows that Aegean was quite successful in filling its seats with reasonable price stimulation in H2’16. In fact, the recovery in passenger demand in H2 helped Aegean grow its load factors for the first time since Q2 2014 while managing to contain the yield contraction at -4% in Q3. Q4 saw more pronounced fare discounting (-12%) but this drove an impressive 5.9pps increase in load factors. Higher load factors not only mean fuller planes but also increase efficiency, thus being margin-accretive.
Aegean’s RPK vs. ASK growth by quarter (yoy % change) Aegean load factors, yoy change in percentage points (pp)
30% 8.0 pp 20% 6.0 pp 10% 4.0 pp 0% 2.0 pp -10% 0.0 pp -20% -2.0 pp
-4.0 pp
Q3 14a Q3 14a Q4 15a Q1 Q1 14a Q1 14a Q2 15a Q2 15a Q3 15a Q4 16a Q1 16a Q2 16a Q3 16a Q4
Q2 14a Q2 14a Q3 14a Q4 15a Q1 15a Q2 15a Q3 15a Q4 16a Q1 16a Q2 16a Q3 16a Q4 ASK Traffic (RPK) Yield (Revenue per RPK) 14a Q1
Source: HCAA, Eurobank Equities Research, AIA.
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AEGEAN AIRLINES March 27, 2017
FY17 outlook: Capacity discipline to underpin load factors and yields
Expecting better capacity Looking ahead into 2017, the supply outlook is looking relatively benign. After 2 years of discipline in FY17, as Ryanair aggressive expansion, Aegean’s biggest competitor Ryanair is actually planning capacity reduces seats deployed in cutbacks, reducing its available seats deployed not only at the airports of islands hit by the Greece refugee crisis but also at cities such as Athens (-17%) and Thessaloniki (-7% from +14% announced initially). The table below exemplifies the yoy change of seats to be made available by Ryanair as part of its Summer 2017 program. Note that the reduction in available seats first announced by Ryanair was c223K, but this incorporated the initially planned +14% increase of seats deployed in Thessaloniki. Adjusting for this to incorporate the 7% contraction, we estimate Ryanair will reduce available capacity by c3% for the summer 2017 program.
Ryanair summer program 2017 seat change 2017 vs. Airport 2016 (‘000s) yoy % Kos -126 -100% Rhodes -38 -15% Corfu -27 -17% Kefalonia -5 -11% AIA -17% Thessaloniki -117 -7% Santorini -5% Chania 4% Mykonos 39% Total -340 -3% Source: Company data, Kathimerini, Eurobank Equities Research
As far as other competitors are concerned, the situation is not markedly different. The capacity related to the summer program of the Thessaloniki airport – where competition is rather intense – is quite indicative in this respect. As one can easily see, only 5 airlines seem to intend to increase the number of seats on offer. On the contrary, the top 4 airlines – in terms of market share – appear to be scaling back capacity.
Thessaloniki seat capacity Seats June 2017 Summer 2017 vs. Summer 2016 (‘000s)* Seats yoy % Aegean 115.4 -9% Ryanair 75.8 -7% EasyJet 15.9 -2% Ellinair 15.4 -51% germanwings 11.8 14% Airberlin 10.6 -42% Turkish Airlines 9.1 5% Air Serbia 5.8 2% Transavia 5.7 1% Astra Airlines 5.3 -54% Austrian Airlines 5.2 26% Source: anna.aero, HCAA, Eurobank Equities Research *Monthly one-way
A similar picture is painted by the winter 2017 program plans of Aegean’s main competitor. The latter has announced it intends to decrease its exposure to AIA by c22%. Overall, capacity deployed by Ryanair in all Greek airports is set to contract by c10% for the winter 2017, according to Imerisia.
Ryanair winter program 2017 – capacity change yoy Airport yoy % change AIA -22% All Greek airports -10% Source: Company data, Imerisia, Eurobank Equities Research
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AEGEAN AIRLINES March 27, 2017
Capacity deployed at regional Overall, according to data provided by SETE Intelligence, international capacity deployed at airports set to increase by just Greece’s regional airports for the Summer 2017 program (March-October) is set to increase 2%, on our estimate driven by by c6%, quite reasonable we reckon in the context of the popularity of Greek tourism c6% growth in international destinations. On the other hand, domestic capacity is set to decline c13%, as a result of seats cutbacks at almost all airports with only a few exceptions (e.g. Zakynthos and Kalamata). On our estimates, this points to subdued growth for the overall capacity outlay which will amount to c2%. In its turn, this will have an incipient positive impact on load factors assuming reasonable inbound tourism trends, thus underpinning load factors and yields.
Capacity for summer 2017, Greek regional airports seats ('000s) 2016 2017 yoy % International Thessaloniki 1,657 1,827 170 10% Rhodes 2,646 2,714 68 3% Kos 1,279 1,228 -51 -4% Heraklion 3,654 4,097 443 12% Chania 1,253 1,245 -8 -1% Corfu 1,717 1,673 -44 -3% Zakynthos 843 991 148 18% Other regional airports 2,540 2,771 231 9% International all regional airports 15,588 16,546 958 6%
Domestic Thessaloniki 1,026 897 -129 -13% Rhodes 461 395 -66 -14% Kos 158 106 -53 -33% Heraklion 487 435 -51 -11% Chania 329 328 -1 0% Corfu 161 130 -31 -20% Zakynthos 16 15 0 -1% Other regional airports 1,516 1,317 -199 -13% Domestic all regional airports 4,154 3,623 -531 -13%
Total all regional airports 19,742 20,169 427 2%
Source: SETE intelligence, Eurobank Equities Research
Aegean will also scale back On its part, Aegean also intends to rationalize capacity taking advantage of the expiration of capacity in FY17 several of its operating leases. As revealed during the conference call, Aegean intends to curb capacity – in terms of available seats – by c5% as it proceeds to the reallocation of routes (focusing on its key AIA hub) and operates on 3 fewer aircraft. Overall, in sync with mgt’s comment, we have assumed Aegean’s overall capacity for 2017 will shrink 5% in terms of seats but will be flat in terms of ASKs (due to the longer stage length). This will follow a cumulative >50% growth in ASKs since 2013.
Demand trends pave the way As far as demand is concerned, this is primarily dependent on international inbound tourism, for higher load factors… since the latter accounts for >80% of total traffic. In this respect, the most pertinent driver for inbound tourism are macroeconomic conditions at the major source markets (Germany, UK, France, Italy, Russia) but, needless to say that Greece’s political stability is a sine qua non for a strong inbound leisure trend.
As mentioned previously, year-to-date trends are quite healthy: AIA international passenger growth rates remain in the double-digits (c+15% in the 2 months to end Feb) on higher load factors (capacity increase limited to single-digit percentage). Domestic traffic trends for the AIA are negative but the c2% decline in the first two months is reasonable in the context of the negative macroeconomic backdrop and the low single-digit capacity reduction.
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AEGEAN AIRLINES March 27, 2017
Athens International Airport – yoy traffic change (%)
30% 25% International traffic 20% trends remaining robust 15% 10% 5% 0%
-5%
Jul-16
Jan-16 Jan-17
Jun-16
Oct-16
Apr-16
Feb-16 Feb-17
Sep-16
Dec-16
Aug-16
Nov-16
Mar-16 May-16 AIA domestic passengers AIA international passengers
Source: HCAA, Eurobank Equities Research, AIA.
Regional airports have also had a positive start to the year with total traffic +6% in the first two months despite the 2.5% reduction in the number of flights over the same period.
Regional airports – yoy change (%) in flights and passengers 25% 20% Demand outstripping 15% supply 10% 5% 0% -5%
-10%
Jul-16
Jan-16 Jan-17
Jun-16
Oct-16
Feb-16 Apr-16 Feb-17
Sep-16
Dec-16
Aug-16
Nov-16
Mar-16 May-16 Flights Passengers
Source: HCAA, Eurobank Equities Research, AIA.
… thus underpinning yields Taking the above into account, and given comments for solid pre-booking patterns for the critical Summer 2017 program, we expect load factors to expand in 2017. Although any estimate regarding the extent of price stimulation that will be required to fill seats is subject to much uncertainty, we believe that the combination of disciplined capacity – especially by the two main competitors – and a relatively benign demand outlook are likely to help Aegean contain the yield decline at c3%. We also argue that average pricing should be supported by the recovery of the fuel price, as fuel benefits tend to be passed-through by the airlines to the consumers – at least partly – through fares. We would expect a small reversal of this trend in 2017. Note that our previous assumptions were incorporating higher yields but lower load factors. Given comments at the conference call, we believe the outlook for 2017 points to the opposite, but with the end result for revenues being similar, namely positive. For 2018, our estimates are predicated on a modest increase in load factors and stabilization of yields, which have declined c20% cumulatively since 2013.
Top line KPIs – Aegean Metric 2013 PF 2014 2015 2016 2017e 2018e 2019e Load factor (RPK/ASK) 78.6% 78.6% 76.9% 77.6% 79.9% 81.6% 81.6% yoy change 0.0 pps -1.7 pps 0.7 pps 2.3 pps 1.6 pps 0.0 pps Total RASK (revenue per ASK, in euro cents) 8.0c 7.6c 6.8c 6.3c 6.3c 6.3c 6.3c % change -6% -10% -8% 0% 0% 0% Yield (revenue per RPK, in euro cents) 10.2c 9.6c 8.9c 8.1c 7.9c 7.8c 7.7c % change -6% -8% -8% -3% -2% 0% Revenue per passenger 95.8 € 90.2 € 84.4 € 81.9 € 82.2 € 82.1 € 82.5 € % change -6% -6% -3% 0% 0% 0% Source: Company, Eurobank Equities Research
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AEGEAN AIRLINES March 27, 2017
Costs – ongoing streamlining
Aegean is already quite Aegean’s costs consist of six main categories: jet fuel, staff costs, airport charges, rentals, efficient on a unit cost basis… expenses, navigation/handling and maintenance. These account for c77% of the cost base with another 23% being accounted for other opex (distribution and marketing, admin costs, depreciation etc.). The figure on the right hand side below shows that Aegean has managed to rationalize its cost base to a great extent bringing unit costs ex-fuel closer to the levels of the stand-alone entity (i.e. prior to the acquisition of Olympic in 2013). Overall unit costs have been reduced even further aided by the decline in the oil price, with jet fuel currently consisting c20% of Aegean’s total cost base vs. 29% in 2013 (pro-forma for Olympic).
Aegean cost mix 2016 (% of costs) Aegean unit costs - € cents
7.5 Payroll 7.0 12% 6.5 Jet fuel 23% 6.0 Mainten. 5.5 5.0 20% Handling 4.5 4.0
13% Airport char.
2013
2014a 2015a 2016a
2019e 2017e 2018e
Rentals PF 2013 6% 12% 14% Other CASK (EBIT level) CASK - ex fuel (EBIT level)
Source: Company, Eurobank Equities Research
… but continues to reign in With unit costs at slightly less than €6c, Aegean’s cost base is almost as efficient as that of costs LCCs, especially adjusting for the shorter stage length. In this respect, it is hard to envisage further significant cost cuts, although mgt has emphasized it remains focused on tightly monitoring costs. During the conference call, mgt abstained from providing specific cost- saving targets but did point out it expects savings from shifting away from the GDS platforms and the utilization of alternative systems including direct selling. Mgt also provided reassurance that the privatisation of the Greek regional airports will not be accompanied by higher fees, at least for the next 4 years until the concessionaire has completed the investments stipulated in the agreement.
Unit cost comparison vs. peer group 8.00 7.00 Air France- KLM 6.00
IAG 5.00 Aegean 4.00 ESJ Turkish 3.00 Pegasus 2.00 RYA 1.00 0.00
CASK ex fuel in EUR cents in CASK fuel ex 0 500 1,000 1,500 2,000 2,500 3,000 3,500 stage length in km
Source: Bloomberg, Eurobank Equities Research, Company data.
As far as fuel is concerned, the Brent price has come off recently from c$55-56/bbl in February to c51-52$/bbl now. This is higher than the average price of 2016 (c$45/bbl) but we remind investors that Aegean’s effective price in 2016 was higher given the hedges in place 12
AEGEAN AIRLINES March 27, 2017
(60% hedged at the start of the year at $55-60/bbl). As a result, given Aegean’s hedges for 2017 and assuming spot rates for the remainder of the year, we estimate the effective $ fuel cost will be down c6-7% yoy, rendering fuel a tailwind for 2017e. This will be offset, though, by the FX headwind stemming from the weakening of the € against the $ and the fact that the favourably priced FX hedges (at €/$ 1.24, leading to an effective rate close to 1.19 in 2016) have rolled off.
Jet fuel and Brent price
1600 100 1400 90 1200 80 70 1000 60 800 50 600 40 400 30
200 20
Jul-15 Jul-16
Jan-15 Jan-16 Jan-17
Sep-14 Sep-15 Sep-16
Nov-14 Nov-15 Nov-16
Mar-16 Mar-15
May-15 May-16 Jet fuel (USD/MT) Brent (USD/bbl)
Source: Bloomberg, Eurobank Equities Research.
Overall, our estimates are predicated on modest cost savings on a unit basis ex-fuel for 2017, followed by flattish underlying unit costs in 2018. As for fuel, we come up with a slight unit cost decline in 2017e followed by a 2% increase in 2018.
Cost assumptions - Aegean 2013 PF 2014 2015 2016 2017e 2018e Fuel unit costs 2.1c 1.9c 1.5c 1.2c 1.2c 1.2c % change -8% -23% -18% -1% 2% CASK ex fuel (EBITDAR level, in euro cents) 4.2c 3.9c 3.9c 3.8c 3.8c 3.8c % change -7% -1% -1% -1% 0% Source: Company, Eurobank Equities Research
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AEGEAN AIRLINES March 27, 2017
Estimates update
Following on from Aegean’s FY16 results, we have not made significant changes to our estimates. We have edged up only slightly our numbers on the back of the positive momentum in the first two months of the year, but we await for more concrete signs of the capacity and demand balance as we approach the critical summer period. A detailed overview of the underlying assumptions underpinning our model is provided on the next page but, in short, we point out the following: - We assume Aegean operates with 3 fewer aircraft from 2017 onwards, translating to a capacity contraction of 5% in terms of seats (flat ASKs). - We have increased our traffic assumptions on the back of higher load factors. - We assume the increased load factors will be achieved on reasonable fare discounting resulting in c3% contraction in yields - We anticipate CASK ex-fuel to edge 1% lower in FY17e, but we do see some room for further containment. Each 1% extra saving in unit costs would translate to a c€6m increase to our EBITDAR estimates (c3% impact). - As for fuel, we assume Brent price c$52/barrel for 2017 for Aegean’s unhedged position and a similar price point beyond 2018, broadly in sync with the forward curve.
Eurobank Equities estimates EUR mn 2017e 2018e 2019e New Sales 1,017 1,008 1,025 EBITDAR 212 207 222 Net profit 48 46 56 Previous Sales 994 996 1,032 EBITDAR 208 205 218 Net profit 47 46 54 % diff Sales 2% 1% -1% EBITDAR 2% 1% 2% Net profit 3% 2% 3% Source: Eurobank Equities Research
Sensitivities Below we present a summary of the sensitivity exercise we have undertaken for Aegean depending on various levels of key assumptions. - Fuel: Overall, we find that a 5 $/bbl increase in fuel prices would lower 2017-18e EBITDAR by c2-5%. This takes into account the change in the unhedged portion of Aegean’s fuel needs (25% and 60% respectively for 2017-18e). - FX: Aegean is hedged c50% for both 2017e and 2018e at €/$ c1.11. On our estimates, each c1% movement on the €/$ rate is worth c4% on FY17-18e EBITDAR. - Yield: The greatest sensitivity comes from the variation in yields. Were we to flex our 2018e yield assumption by c1%, this would change our EBITDAR estimate by c9%.
Aegean EBITDAR sensitivity % change in Assumption 2018e EBITDAR Fuel 5 USD/bbl 5% FX 1% change 4% Yield 1% change 9% Source: Eurobank Equities Research
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AEGEAN AIRLINES March 27, 2017
Assumptions
Our main operating assumptions are summarized in the following tables:
Traffic and load factor
2015a 2016a 2017e 2018e 2019e Traffic - RPKs (in bn) 11.3 12.7 13.1 13.2 13.4 % change 18% 13% 3% 1% 2% Scheduled Load factor (RPK/ASK) 79.1% 77.4% 80.7% 82.2% 82.5% change 0.8 pps 0.5 pps 3.3 pps 1.5 pps 0.3 pps Source: Company, Eurobank Equities Research
Capacity 2015a 2016a 2017e 2018e 2019e ASK (bn) 14.7 16.4 16.3 16.2 16.5 % change 20% 12% 0% -1% 2% Total available seats (mn) 15.2 16.2 15.4 15.0 15.2 % change 16% 7% -5% -2% 1% Average stage length (km) 809 864 907 921 930 % change 5% 7% 5% 1% 1% Source: Company, Eurobank Equities Research
Passenger data mn 2015a 2016a 2017e 2018e 2019e By network Domestic Passengers (mn) 5.6 5.7 5.6 5.4 5.3 % change 7% 2% -3% -4% 0% International Passengers (mn) 6.0 6.7 6.8 6.9 7.1 % change 24% 12% 1% 2% 2% Total number of passengers (mn) 11.6 12.5 12.4 12.3 12.4 % change 15% 7% -1% -1% 1% Source: Company, Eurobank Equities Research
Other Metrics 2015a 2016a 2017e 2018e 2019e Total RASK (total revenues/income per ASK, € cents) 6.8c 6.3c 6.3c 6.3c 6.3c % change -10% -8% 0% 0% 0% Yield (total revenues/income per RPK, € cents) 8.9c 8.1c 7.9c 7.8c 7.7c % change -8% -8% -3% -2% 0% Revenue per passenger (€) 84.4 € 81.9 € 82.2 € 82.1 € 82.5 € % change -6% -3% 0% 0% 0% Costs Pre-rental operating cost/ASK (CASK, € cents) 5.3c 5.1c 5.0c 5.0c 5.0c % change -8% -6% -1% 1% -2% CASK ex fuel (EBITDAR level, € cents) 3.9c 3.8c 3.8c 3.8c 3.8c % change -1% -1% -1% 0% -1% Source: Company, Eurobank Equities Research
Fleet overview
2015a 2016a 2017e 2018e 2019e Airbus A319 2 1 1 1 1 Airbus A320 28 38 37 37 38 Airbus A321 6 8 8 8 8 Turboprops 14 15 13 13 13 Total 50 62 59 59 60 Source: Company, Eurobank Equities Research
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AEGEAN AIRLINES March 27, 2017
Quarterly results summary
Aegean results summary EURmn Q1 15a Q2 15a Q3 15a Q4 15a FY 15a Q1 16a Q2 16a Q3 16a Q4 16a FY 16a Scheduled 114.3 222.9 326.4 163.8 827.4 126.8 211.4 361.0 171.1 870.4 Charter 1.0 13.3 27.7 3.7 45.7 0.5 13.1 21.2 6.6 41.4 Other 22.7 29.5 34.5 23.2 109.9 20.6 31.1 34.1 22.8 108.6 Sales 138.1 265.5 388.6 190.8 983.0 147.9 255.6 416.3 200.4 1020.3 yoy change 3.1% 4.2% 11.9% 8.5% 7.8% 7.1% -3.7% 7.1% 5.0% 3.8% Other Income 2.1 8.8 2.5 5.4 18.8 4.3 3.4 2.7 3.8 14.2 Payroll -24.3 -26.7 -30.7 -27.7 -109.4 -25.9 -29.9 -35.7 -28.0 -119.5 Fuel costs -30.8 -61.5 -78.1 -45.9 -216.3 -29.5 -53.7 -72.2 -41.9 -197.3 Other operating costs -78.4 -125.8 -150.0 -104.6 -458.8 -90.9 -140.0 -163.8 -116.2 -510.8 EBITDAR 6.7 60.3 132.3 18.0 217.3 5.9 35.4 147.4 18.1 206.9 margin 4.9% 22.7% 34.0% 9.4% 22.1% 4.0% 13.8% 35.4% 9.0% 20.3% - Leases -20.9 -26.4 -31.7 -27.1 -106.1 -29.6 -31.8 -33.6 -35.1 -130.1 EBITDA -14.2 33.9 100.6 -9.1 111.2 -23.7 3.6 113.8 -17.0 76.8 margin -10.3% 12.8% 25.9% -4.8% 11.3% -16.0% 1.4% 27.3% -8.5% 7.5% - Depreciation -3.3 -3.6 -4.5 -2.6 -14.0 -4.0 -4.7 -5.5 -3.8 -18.0 EBIT -17.5 30.3 96.1 -11.7 97.2 -27.7 -1.1 108.3 -20.7 58.8 - Net financial expense/other 5.2 0.9 -0.2 -2.8 3.1 -1.9 -1.0 -3.6 -0.8 -7.3 PBT Reported -12.3 31.2 95.8 -14.4 100.3 -29.6 -2.1 104.8 -21.6 51.6 - Net financial expense/other 4.0 -8.2 -28.6 0.9 -31.9 8.1 -0.1 -29.9 2.5 -19.4 Net Profit Reported -8.3 23.1 67.1 -13.5 68.4 -21.5 -2.2 74.9 -19.1 32.2 EPS reported -0.12 € 0.32 € 0.94 € -0.19 € 0.96 € -0.30 € -0.03 € 1.05 € -0.27 € 0.45 €
KPIs - € cents Q1 15a Q2 15a Q3 15a Q4 15a FY 15a Q1 16a Q2 16a Q3 16a Q4 16a FY 16a Revenue per passenger (€) 74.8 € 85.2 € 91.1 € 78.9 € 84.4 € 73.5 € 79.4 € 90.9 € 75.5 € 81.9 € yoy change -9.0% -9.5% -6.4% -0.9% -6.4% -1.7% -6.7% -0.2% -4.3% -3.0% Total RASK 6.3 c 6.9 c 7.3 c 6.2 c 6.8 c 5.9 c 5.8 c 7.2 c 5.9 c 6.3 c yoy change -14.9% -9.0% -8.7% -8.6% -9.6% -6.2% -16.7% -2.4% -5.5% -7.5% Yield (Revenue per RPK) 9.0 c 9.2 c 8.9 c 8.3 c 8.9 c 8.5 c 8.0 c 8.6 c 7.3 c 8.1 c % change -11.4% -5.9% -7.6% -7.4% -7.7% -4.9% -13.3% -3.8% -12.3% -8.3% CASK ex fuel (EBITDAR level) 4.6 c 3.8 c 3.4 c 4.2 c 3.9 c 4.5 c 3.8 c 3.4 c 4.2 c 3.8 c % change -0.7% -2.9% -3.4% 3.0% -1.4% -1.7% -1.7% 0.6% -1.0% -0.7% CASK (EBITDAR level) 6.0 c 5.4 c 4.9 c 5.7 c 5.3 c 5.7 c 5.0 c 4.7 c 5.4 c 5.1 c % change -9.7% -7.9% -10.8% -4.0% -8.4% -5.3% -7.8% -4.4% -5.1% -5.5% Fuel unit cost 1.4 c 1.6 c 1.5 c 1.5 c 1.5 c 1.1 c 1.2 c 1.2 c 1.2 c 1.2 c % change -30.7% -18.3% -24.3% -19.8% -22.8% -17.2% -22.9% -15.8% -17.1% -18.3%
Source: Company, Eurobank Equities Research
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AEGEAN AIRLINES March 27, 2017
Risks and sensitivities
Macroeconomic risks: As an airline, Aegean is exposed to both global and regional macroeconomic developments. Its business may be negatively affected by the reduction in passenger traffic due to economic downturns, falling disposable income, higher unemployment etc. In general, GDP growth across source markets determines to a large extent growth in demand for air transport.
Overcapacity and fixed cost structure: Increasing capacity tends to intensify competition and often leads to lower fares and/or lower load factors. Overcapacity may result in excessive yield compression which airlines might not be able to offset by higher load factors and/or cost cutting. At the same time fixed costs represent a large part of an airline’s cost structure (usually more than half of total cost base). Given that most of the revenues are variable, a significant drop in load factors would have a severe impact on profitability.
Fuel costs: Fuel costs are a major item of expense for all airlines. For Aegean fuel makes up c24% of costs and, as a result, fluctuations in fuel prices can have a considerable effect on Aegean’s profitability. In order to eliminate this risk, the company hedges part of its fuel needs when it considers it necessary.
Low sector margins: The average EBITDAR margin in the airline industry across the cycle is in the low teens (for network carriers) and translates to a single digit margin at EBIT level. In addition, the airline business is characterized by high cyclicality and high revenue volatility especially during adverse one-off events. Although airlines insure/hedge a large part of the risks associated to unpredictable factors, the thin profit margins are still vulnerable to small revenue fluctuations.
Geopolitical and regulatory risks: Geopolitical events such as wars, terrorist attacks or environmental catastrophes affect leisure and business travel in the short-term and can have serious impact on an airline’s profitability. Political decisions can also have wide- reaching effects especially if these affect competition (e.g. subsidies for certain market participants, air traffic taxes, restrictions on night flights etc.).
Tighter border controls and changes to the Schengen regime: The ongoing refugee crisis and the EU’s determination to combat terrorism have led several member states to reintroduce border controls, a move that may be seen as putting at risk passport-free travel across Europe. Tighter border controls may hamper traffic flows, thus negatively affecting airlines’ revenues. A potential change to the Schengen travel regime would have even greater repercussions for Greece as a tourism destination.
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AEGEAN AIRLINES March 27, 2017
Brief company description
Aegean is the leading carrier in Greece servicing c12.5m passengers through a fleet of 59 aircraft (in 2017e). Having acquired Olympic in end 2012, Aegean is now primarily focused on expanding its international network from AIA and regional bases. Thanks to its focus on cost control and its premium pricing relative to LCCs (as it is a full-service carrier), Aegean’s EBITDAR margins are still at the high-end within the global airline industry.
Aegean in 4 charts and a table
Revenue mix Cost breakdown (as % of total costs, EBIT level), 2016 100%
80% Payroll 12% 23% Jet fuel 60% Mainten. 40% 20% Handling 20% 13% Airport char. 0% Rentals 2009 2012 2013 2015 6% 12% Other 14% PSO revenues Domestic International
Source: Eurobank Equities Research, Company data
International activity by source market International activity by base
10% 15% Western Europe Athens
25% Cyprus 15% Thessaloniki & 55% Larnaca Central Europe
70% Regional/Leisure 10% Middle East
Source: Eurobank Equities Research, Company data
Fleet overview
2015a 2016a 2017e 2018e 2019e Airbus A319 2 1 1 1 1 Airbus A320 28 38 37 37 38 Airbus A321 6 8 8 8 8 Turboprops 14 15 13 13 13 Total 50 62 59 59 60 Source: Company, Eurobank Equities Research
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AEGEAN AIRLINES March 27, 2017
Group Financial Statements
Balance Sheet (EUR mn) 2015a 2016a 2017e 2018e 2019e
Non-current Assets Property, Plant & Equipment (net) 103.9 100.8 93.3 85.7 77.8 Intangible Assets 87.4 86.8 82.2 77.8 73.5 Other Long-term Assets 82.9 38.4 38.4 38.4 38.4 Total Non-current Assets 274.2 226.0 214.0 201.9 189.7
Inventories 13.2 16.1 14.5 14.3 14.5 Trade Receivables 104.5 106.0 69.1 68.6 69.7 Other Receivables 48.1 49.6 38.2 37.7 38.1 Cash & Equivalents 189.3 248.5 211.1 199.2 192.3 Securities 39.6 4.7 58.5 84.4 119.9 Current assets 394.7 424.8 391.4 404.2 434.6
Total Assets 668.8 650.8 605.4 606.1 624.3
Share Capital & Premium 119.2 119.2 119.2 119.2 119.2 Reserves 102.8 125.1 144.6 157.2 180.5 Minority Interest 0.0 0.0 0.0 0.0 0.0 Total Equity 222.0 244.3 263.8 276.4 299.7
LT Loans/Finance leases 45.2 35.8 28.3 20.8 13.3 Provisions/ Other Long term liabilities 68.7 51.2 40.8 40.8 40.8 Long Term Liabilities 113.9 87.1 69.2 61.7 54.2
ST Loans 11.0 10.9 0.0 0.0 0.0 Trade Payables 77.1 87.1 61.0 60.5 61.5 Other Payables 244.9 221.4 211.4 207.6 208.9 Current liabilities 333.0 319.4 272.4 268.1 270.5
Total Equity & Liabilities 668.8 650.8 605.4 606.1 624.3
Source: Company, Eurobank Equities Research
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AEGEAN AIRLINES March 27, 2017
P&L (EUR mn) 2015a 2016a 2017e 2018e 2019e
Turnover 983.0 1,020.3 1,016.9 1,008.4 1,025.4 change 7.8% 3.8% -0.3% -0.8% 1.7%
Other Operating Income 18.8 14.2 14.5 14.8 15.1
Payroll Expenses -109.4 -119.5 -120.4 -121.4 -123.7 Jet Fuel -216.3 -197.3 -195.6 -196.4 -194.5 Maintenance Expenses -97.6 -118.6 -111.9 -110.0 -110.0 Airport Charges -50.7 -56.0 -56.7 -55.7 -55.8 Other Costs (handling, catering, navigation) -151.9 -160.4 -160.0 -157.4 -157.6
Gross Profit 357.1 368.5 372.3 367.4 383.8 Gross Margin 36.3% 36.1% 36.6% 36.4% 37.4%
Selling, Administrative & Other Expenses -139.8 -161.6 -160.4 -160.0 -161.4
EBITDAR 217.3 206.9 211.9 207.4 222.4 change 3.7% -4.8% 2.4% -2.1% 7.2% EBITDAR margin 22.1% 20.3% 20.8% 20.6% 21.7%
Aircraft Leases -106.1 -130.1 -124.2 -123.6 -125.7
EBITDA - adjusted 111.2 76.8 87.7 83.8 96.7 change -6.4% -30.9% 14.2% -4.5% 15.4% EBITDA margin 11.3% 7.5% 8.6% 8.3% 9.4%
Depreciation and Amortisation -14.0 -18.0 -17.0 -17.1 -17.2
EBIT - adjusted 97.2 58.8 70.7 66.7 79.5 EBIT margin 9.9% 5.8% 7.0% 6.6% 7.8%
Net Financial Income / (expense) -5.0 -5.3 -3.0 -1.5 -1.1
Earnings Before Tax - adjusted 92.2 53.5 67.7 65.2 78.4 change -10.5% -42.0% 26.5% -3.7% 20.3% EBT margin 9.4% 5.2% 6.7% 6.5% 7.6%
Exceptionals/Derivative and FX gains or losses 8.1 -1.9 0.0 0.0 0.0
Earnings Before Tax - reported 100.3 51.6 67.7 65.2 78.4
Tax -31.9 -19.4 -19.6 -18.9 -22.7 Minorities 0.0 0.0 0.0 0.0 0.0
Earnings After Tax - reported 68.4 32.2 48.1 46.3 55.7
Net Profit - adjusted 62.6 33.4 48.1 46.3 55.7 change -8.6% -46.7% 43.9% -3.7% 20.3%
EPS - adjusted (EUR) 0.88 0.47 0.67 0.65 0.78
DPS (EUR) 0.70 0.40 0.47 0.45 0.55
Source: Company, Eurobank Equities Research
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AEGEAN AIRLINES March 27, 2017
Cash Flow Statement (EUR mn) 2015a 2016a 2017e 2018e 2019e
EBIT 97.2 58.8 70.7 66.7 79.5 Depreciation and Amortization 14.0 18.0 17.0 17.1 17.2 Changes in Working Capital -1.4 19.6 13.7 -3.1 0.6 Net Interest -2.1 -3.3 -3.0 -1.5 -1.1 Tax -31.9 -19.4 -19.6 -18.9 -22.7 Other -18.6 -8.6 0.0 0.0 0.0
Net Inflows (Outflows) from Operating Activities 70.7 60.0 78.7 60.3 73.5
Capex -20.2 -4.7 -5.0 -5.0 -5.0 Other investing inflow (outflow) -21.3 22.6 -10.4 0.0 0.0
Net Inflows (Outflows) from Investing Activities -41.5 17.9 -15.4 -5.0 -5.0
Free Cash Flow 29.2 77.8 63.3 55.3 68.5
Net Dividends Paid -49.9 -49.9 -28.6 -33.6 -32.4
Net debt / (cash) -172.8 -206.4 -241.2 -262.8 -298.9
Source: Company, Eurobank Equities Research
Ratios 2015a 2016a 2017e 2018e 2019e
P/E 8.0 14.7 10.2 10.6 8.8 P/BV 2.2 2.0 1.9 1.8 1.6 P/Sales 0.5 0.5 0.5 0.5 0.5
EV/EBITDA 2.9 3.7 2.8 2.7 2.0 EV/EBITDAR 5.0 5.8 5.3 5.3 4.9 EV/Sales 1.1 1.2 1.1 1.1 1.1
Adj. Fixed Charge Cover (EBITDAR/Leases and net fin. expenses) 2.0 1.5 1.7 1.7 1.8 Gearing (lease-adjusted) 72.3% 74.5% 70.7% 68.9% 66.3% Adj. Net Debt/EBITDAR 2.7 3.4 3.0 3.0 2.7
Dividend Yield 10.0% 5.8% 6.9% 6.6% 7.9% ROE 28.6% 14.3% 18.9% 17.1% 19.3%
Cash Flow Yield 5.8% 15.9% 12.9% 11.3% 14.0% Payout Ratio 73.1% 88.7% 70.0% 70.0% 70.0%
Source: Company, Eurobank Equities Research *Operating leases capitalized at 7x annual lease payment.
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AEGEAN AIRLINES March 27, 2017
Eurobank Equities Investment Firm S.A. 10 Filellinon Street Member of Athens Exchange, 105 57 Athens, Greece Cyprus Stock Exchange and Eurobank Group. Telephone: +30 210-3720 000 Regulated by the Hellenic Capital Markets Commission Facsimile: +30 210-3720 001 Authorisation No: 6/149/12.1.1999 Website: www.eurobankequities.gr VAT No: 094543092, Reg. No. 003214701000 E-mail: [email protected] IMPORTANT DISCLOSURES
This report has been issued by Eurobank Equities Investment Firm S.A., a member of the Athens Exchange, a member of the Cyprus Stock Exchange and a member of EUROBANK Ergasias S.A. Eurobank Equities Investment Firm S.A.. is regulated by the Hellenic Capital Markets Commission (HCMC) with authorisation number 6/149/12.1.1999.This report may not be reproduced in any manner or provided to any other persons. Each person that receives a copy by acceptance thereof represents and agrees that it will not distribute or provide it to any other person. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell securities mentioned herein. The investments discussed in this report may be unsuitable for investors, depending on their specific investment objectives and financial position. The investments discussed in this report are subject to risks and in respect of some investments there is risk for multiplied losses to be caused in respect to the capital invested.
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Eurobank Equities Investment Firm S.A. follows procedures under Eurobank Group policies that set up Chinese Walls, restricting communication between Research and other departments inside the Company or the Group so that Eurobank Equities Investment Firm S.A. complies with regulations on confidential information and market abuse. Eurobank Equities Investment Firm S.A., or any of its related legal persons, does not hold shareholdings exceeding 5% of the total issued share capital in Aegean Airlines. None of the subject companies mentioned in this report holds shareholdings exceeding 5% of the total issued share capital of Eurobank Equities Investment Firm S.A., or any of its related legal persons. Eurobank Equities Investment Firm S.A., or any of its related legal persons, is not a market maker of Aegean Airlines. Eurobank Equities Investment Firm S.A., or any of its related legal persons, is not a party to an agreement relating to the production of this report with Aegean Airlines. EUROBANK Equities Investment Firm S.A, or any of its related investment banking services’ legal persons, has not received compensation for investment banking services provided within the last twelve months from Aegean Airlines. Eurobank Equities Investment Firm S.A. occasionally trades for own account on investment instruments related to Aegean Airlines. This report was not sent to the company for factual verification prior to publication.
Analyst Certification: This report has been written by Stamatios Draziotis, CFA (Equity Analyst).
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12-month Rating History of Aegean Airlines Date Rating Stock price Target price 27/03/2017 Buy € 6.87 € 8.20 16/12/2016 Buy € 6.14 € 8.00 30/09/2016 Buy € 6.13 € 8.00 22/09/2016 Buy € 6.45 € 10.10 26/08/2016 Buy € 6.92 € 10.10 25/05/2016 Buy € 8.13 € 10.10 01/04/2016 Buy €8.50 € 9.90
EUROBANK Equities Investment Firm S.A. Rating System: Stock Ratings Coverage Universe Investment Banking Clients Count Total Count Total Buy 13 50% 1 8% Hold 6 23% 0 0% Sell 2 8% 0 0% Restricted 2 8% 0 0% Under Review 3 12% 0 0% Total 26 100%
Analyst Stock Ratings: Based on a current 12-month view of total shareholder return (percentage change in share price to projected target price plus projected dividend yield), we Buy: recommend that investors buy the stock. Hold: We adopt a neutral view on the stock 12-months out and, on this time horizon, do not recommend either Buy or Sell. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock. Restricted: Under Eurobank Group policy and / or regulations which do not allow ratings Under Review: Our estimates, target price and recommendation are currently under review
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