The meaningful €9.0bn rescue fund from the German government will allow Lufthansa to get out of a morass, but the path is still unclear. Implementing an efficient restructuring will be essential for the group, which is facing heavy financial stress and actively-weakened capacity (release of slots), in a context of structurally-declined passenger demand.
Companies: Deutsche Lufthansa
Deutsche Lufthansa has to be majority-controlled by German shareholders. On 31 December 2019, 67.3% of the shares were controlled by domestic shareholders. During the last few days, Thiele has acquired a 10% stake.
Lufthansa had released some 2019 numbers on 13 March and has now released its annual report. Concerning the current year, management is not in a position to quantify the revenue and profit setback. However, it will send its employees on short-time work and management will abstain from 20% of its basic salaries.
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.
Whereas Network airlines continued seeing rising passenger numbers (+2.5% to 7.45m), Eurowings saw the number dropping by 7.9% to 2.41m. However, both divisions improved their SLFs (+2.6pp to 81.2% and +1.0pp to 79.1%, respectively). However, a budget airline with a lower SLF than an incumbent one suggests that Eurowings’ profit problems are far from having been solved. Unfortunately, Lufthansa will no longer release these numbers on a monthly basis.
… but our full-year projections seem reasonable. The carrier suffered from walkouts by the cabin crews which, according to management, lowered the passenger number by about 180k. Excluding this, the passenger number would have been about unchanged.
The carrier had announced in late November that it intended to sell the European part of its catering activities to Swiss Gategroup. It has now published its intention not to sell these activities in their entirety but a majority. It has not announced any details but mentions that the transaction, if approved by cartel authorities, will not lead to any changes of its 2019 and 2020 profits.
Head of HR has to leave as of the end of this year. The reason has possibly been her inability to find mutual agreements with employee representatives and the unions which have resulted in regular walkouts and strikes.
Eurowings is the carrier’s budget airline and it has generated losses. According to management, most of these losses occurred on long-distance flights. As a consequence, Eurowings has reduced its long-distance offer since earlier this year. Rumours are now suggesting that management intends to introduce another brandname for these destinations.
Catering has been the carrier’s least profitable operation in recent years. The last peak margin was 5.5% in 2013 and it has been well below this level ever since. Management has now decided to sell the European part of this business to Swiss Gategroup, a company specialised in catering and ancillary businesses.
Lufthansa’s strategy to limit Eurowings to flights within Europe and the around the Mediterranean Sea is showing up in the passenger numbers since the middle of this year or so. As a result, and as the group is not willing to give up the associated slots, Lufthansa’s passenger number continues rising, whereas Eurowings’ number is falling.
Eurowings revenue per sold seat-kilometre has fallen since Lufthansa has shown its budget airline as a separate division. This has changed in the last quarter when it increased by 2.8%. This is one reason why the consolidated accounts’ EBIT and net earnings numbers were higher than we had anticipated.
The passenger number growth has moderated somewhat in September (+2.3% to 14.0m), but the SLF continued to increase (+0.1pp to 84.7%). On the other hand, sold ton-kilometres fell by 3.6% whereas the ytd number is down by ‘only’ 1.9%.
Our current volume projections see the number of passengers increasing by 2.3% to 145.6m in 2019. We expect Network to increase its number by 3.3% to 107.3m but Eurowings’ to fall by 0.5% to 38.3m.
The passenger number of Network increased by 4.0% in both the last month (to 10.6m) and ytd (to 61.5m). The growth rate was also unchanged at Eurowings, but it was only a fraction (+1.5% to 3.96m and 22.0m, respectively) of the former. In fact, management’s new strategy is to limit Eurowings’ growth, in particular on long distances.
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FY20 results – All Focus on Resuming Operations
Companies: Dart Group
Independent review launched: The Boohoo Group has announced the launch of an immediate independent review of its UK supply chain, intended to identify any areas of risk and non-compliance and to further strengthen the Group’s compliance procedures to ensure similar allegations will not recur in the future. The review is to be led by Alison Levitt QC, a highly experienced advocate who has previously reported on complex issues, including safeguarding enquiries. Boohoo has also announced an initial additional £10m investment in ensuring any supply chain malpractice is eradicated and is accelerating its independent third-party supply chain review with ethical audit and compliance specialists Verismo and Bureau Veritas.
Companies: Boohoo Group Plc
Vertu has reported a strong performance for the month of June, following the reopening of all showrooms in England from 1 June and 12 Scottish showrooms reopening on 29 June. Adjusted PBT of £9.0m for the month is ahead of prior year and above the Group’s pre-Covid business plan of £8.6m whilst net cash of £9.7m at 30 June reflects impressive working capital management.
Companies: Vertu Motors
DWF has issued a trading update showing positive momentum during the first two months of the new financial year. We are re-instating our financial forecasts assuming modest organic growth of 2% in 2021E.
Companies: DWF Group
In this note and following the SMMT June data released earlier this week, we look at the key dynamics of the sector during H1 2020, and the prospects for the rest of the calendar year. While no direct stimulus for the sector was announced in the recent summer statement, customers who were considering their purchasing options now have the clarity to move ahead with buying decisions that were potentially on hold.
Companies: CAMB LOOK MMH PDG VTU
Today’s statement reveals incredibly robust Q1 trading across the Group’s brands and regions, with a positive outlook and guidance reinstated for the remainder of the financial year and beyond. In addition, the Group has announced the acquisitions of Oasis & Warehouse, bringing two well-recognised and complementary brands onto its platform. We believe the unprecedented disruption resulting from the COVID-19 pandemic has accelerated the channel shift to online where we see BOO as the clear winner, with an established and leading model positioned to consolidate the market.
We note this morning’s announcement from Boohoo Group strongly refuting several allegations made in a short-selling note published yesterday afternoon. In our opinion arguments made in the short selling note are flawed and do not disclose any new or unexpected information about the Group. The unprecedented market backdrop resulting from the COVID-19 crisis has only acted to highlight the strengths of Boohoo’s agile, pure play, e-commerce model and we see current share price weakness as offering an attractive entry point.
Edison Investment Research is terminating coverage on ADMIE Holdings (ADMIE), AJ Lucas Group (AJL), Australis Capital (AUSA), Elbit Medical Technologies (EMTC), Focusrite (TUNE) and PPHE Hotel Group (PPH). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.
Previously published reports can still be accessed via our website.
Companies: PPHE Hotel Group
Gaming Realms is a creator and licensor of innovative games for mobile, with operations in the UK, U.S. and Canada. Through its unique IP and brands, Gaming Realms brings together media, entertainment and gaming assets in new game formats.
Companies: Gaming Realms
AFC Energy is a global leader in the fuel cell sector. It has a proven fuel cell technology which it is commercialising through its H-Power™ product, an off-grid electric vehicle charging system which is run on hydrogen and produces no emissions. The company's core fuel cell technology is a liquid alkaline fuel cell called HydroX-Cell(L)™. The company is also developing a solid alkaline fuel cell called HydroX-Cell(S)™ , the critical component of which is a is a solid electrolyte which upon validation will be marketed under the AlkaMem™ trademark. We expect the AlkaMem™ product to have multiple electro-chemical applications outside of fuel cells. The purpose of this note is to compare AFC Energy's products, markets and business strategy against its listed peers Ceres Power and ITM Power. The note also assesses the state and outlook of the hydrogen market in addition to the proton exchange membrane market, which is relevant for AFC Energy's AlkaMem™ product. As a reminder, we believe AFC Energy has a fair value of 27p/sh.
Companies: AFC AFC AFC
The final results revealed adjusted PBT up 99% year-on-year, which was 10% better than forecast despite four upgrades during the financial year. This strong performance reflects the financial benefits that have accrued following the shift in the business model to online only, as well as management’s strategic decision to significantly increase marketing spend. A second special dividend for the 2020 financial year has also been announced, reflecting the strong cash flow characteristics of the business model. Our 2021 profit forecast implies continuing momentum and a year-on-year increase in PBT of 86%. We raise our target price to 1050p.
Companies: Best Of The Best
Air Partner has issued a further shareholder update, confirming PBT of at least £10m in the first five months of the year to June, an increase of £2.5m since the last update to May. The Group continues to deliver impressive results despite a challenging market backdrop. As has been the case throughout the COVID-19 crisis, performance has been driven by strong activity in the Freight and Group Charter divisions. Crisis driven activity is expected to reduce in H2, with an anticipated recovery in the Group’s core activities, where the update reports positive early indications across the Group’s divisions. The balance sheet is very well supported, with net cash at 30th June standing at £13m post the recent £7.5m fund raise. The Group continues to have access to total debt facilities of £14.5m. Whilst visibility for H2 remains limited, we believe the Group is well placed to deliver a strongly profitable FY21 result.
Companies: Air Partner
7DIG Trading Update, ALSP* Loan Draw Down, AAU Placing, COG* Contract Win, CHAL New York Wheel, CBUY Contract Win, CGNR* New Gold Zones, DGS Trading Update, MSG* JV, NET Trading Update, OPTI* New Patent, SEE Trading Update, TPG Contract Win
Companies: 7DIG ALSP AAU COG CBUY DGS NET OPTI SEE TPG CGNR CTEA
Share prices are built on expectations - expectations about all sorts of things, such as a company’s future sales growth, the trend in margins and the profits it can return. Understanding those expectations and how they move is critical to share price formation. Listing rules require quoted companies to update investors on progress relative to expectations. What managements often fail to understand is that many of their key investors do not have access to brokers’ research and, thus, cannot put management statements into context. It is these very investors that can cause shock movements in share prices on announcements in limited trading.
Companies: ABZA AGY ARBB BUR COG CLIG COS DNL LRM MUR ODX PPH YGEN PHP PURP RE/ RGD REDX SCLP TRX TON CHOC AVO AVCT VRP TETY
Despite all the hullaballoo of the Brexit vote and the subsequent election of Donald Trump as the next US President, the UK stock market prospered last year, especially in the latter few months of 2016. The combination of a depreciating currency – making $ earnings more valuable in relative terms - and the Trump emphasis on infrastructure expenditure drove the stock market higher
Companies: ABZA AGY APH ARBB BUR COG CLIG COS EVG MUR NSF ODX PPH YGEN PHP PURP RE/ RGD REDX SCLP TRX TON AVO AVCT TETY