Fraport published its 9M results, outperforming our and market expectations. Traffic recovery is strong and the group’s restructuring efforts are already visible in the Aviation and Ground Handling segments in particular. Following this result and guidance update, we will update our estimates upwards, which will positively impact our target price.
Companies: Fraport AG
Fraport’s H1 21 performance was largely driven by one-offs, but the group’s structural improvement was visible through positive EBITDA contribution from all its airports. The group currently sees a positive trend in the traffic, especially in Russia and China where the Q2 traffic was almost at the level of 2019. However, the group’s operational improvement is overshadowed by low FCF due to severance payments and high capex.
Fraport released its Q1 results which were above market expectations. It managed to keep its EBITDA in positive territory. Traffic on its assets continued to be under pressure except in China and Russia. Its restructuring programme is almost complete and the €250m p.a. savings may kick in from 2022. Fraport is in talks with government authorities about some relief and the ~€160m aid from the German government (almost finalised) could significantly boost EBITDA this year.
Fraport has announced FY20 results which were better than our expectations mainly due to higher cost savings, but it has provided a conservative outlook for FY21. Due to the ongoing expansion projects that cannot be entirely delayed, Fraport saw capex of €1.1bn which is expected to remain at this high level at least until 2024 (until the termination of Frankfurt T3’s construction work). The group has not proposed any dividend for FY20.
Traffic at its international airports improved significantly better than at Frankfurt airport, yet the 9M revenue is down by 54%. Provisions of €280m dragged down EBITDA significantly, which in turn brought down net income to €-515m. Fraport has sufficient cost-saving initiatives in place and liquidity to survive the pandemic.
Following today’s result, we will revise our earnings downwards, resulting in a slight drop in the target price.
Fraport has announced H1 results which were better than consensus expectations. Management expects significant traffic reduction going forward, with traffic still remaining 15-20% below the 2019 level by 2022. Hence, it has announced various opex- and capex-reducing measures to adjust to the new outlook.
Fraport released its Q1 results with profits in the negative domain for the first time in a decade. As expected, traffic in April was down by 97%. The company has taken major steps to reduce expenses and has limited the cash burn to ~€150m/month which makes the group capable enough to survive for more than a year based on its current revenues, current financial position and without any government aid.
Before COVID-19 started to spread, management expected the passenger number in Frankfurt to remain unchanged but rising numbers (mid single-digits) at the Brazilian and Greek airports as well as in Lima. This picture has changed and it now sees a considerably negative impact from the virus. It sees a negative EBITDA impact of €10-14 for every passenger lost in Frankfurt. Assuming the passenger number will fall by 10% (or c. 7m), Aviation EBITDA will be down by €70-98m).
February was a catastrophe for Xi’an where Fraport holds a 24.5% minority stake. The passenger number there fell by 88% to 464k. Now that the USA is prohibiting passengers from Europe (excluding the UK) to enter its shores for one month, this will take its toll from now on, hopefully for only one month.
COVID-19 has a much harsher impact on ticket demand than anticipated only one or two weeks ago. Management has now decided, as demand to almost all destinations has collapsed, to reduce the number of flights by up to 50% in the coming weeks. This will obviously also have an impact on Fraport’s passenger number, at least in Frankfurt.
At a glance, the number of passengers in Frankfurt and most of Fraport’s other airports have not been under pressure, with the exception of Xi’an. Frankfurt’s cargo volume fell by 8.6% to 149k as worldtrade continues to be under pressure.
While the passenger number continued rising through to October 2019, it fell in both of the last two months. Simultaneously, the cargo volume fell throughout the entire year and the rate of decline accelerated as of late. This has also taken its toll on the number of flight movements and the maximum take-off weight (MTOW).
Frankfurt Rhein-Main had shown positive growth in each of this year’s months, except for November. The number fell to 5.07m in the last month which brought the ytd number to 65.7m, an increase of 1.7%. Our current projections are based on an increase of 2.0%, which seems too optimistic.
Frankfurt Rhein-Main is one important profit contributor to Fraport’s consolidated accounts and External Services is the other. In fact, Fraport’s stakes in Lima, Greek and Brazilian airports are contributing even higher earnings than the Aviation division. However, one has to include Retail & Properties as well.
The growth rate in passenger numbers moderated somewhat from H1 to Q3 at nearly all of Fraport’s airports and so have revenue and profits. However, we had anticipated this trend and the group’s final 9M profit numbers surpassed our projections.
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Overall, a good operating performance with 9m sales and EBITDA up by 11% and 15% respectively. It was able to manage its margins better than some of its peers as it is a solutions rather than just products provider which allows it to have flexible pricing. Management expects FY21 EBITDA at €5.25bn which is 7% above our current estimate. Hence, we will revise our estimates upwards which will lead to a positive revision to our target price.
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