A clear path to a rally

The group’s 2022 results met the consensus and particularly were a strong endorsement of the company’s mid-term ambitions which had previously won over little confidence. The market reacted positively to the buoyant performance and the strengthened balance sheet, despite the 2023 capacity schedule which lags the peers and the lack of financial guidance. We expect to cut our 2023 estimates to include the expected external disruption and the later recovery but there may be scope to increase our 20

Challenging external support

The IT and airport disruptions last week are likely to have cost Lufthansa ten to twenty million euros. Additionally, the group might have to trim its summer capacity by up to 10% due to a lack of staff at German airports, while European rivals are enjoying a robust restoration of capacity/activities. We will integrate these negatives when more precise guidance is available next Friday on the group’s release of FY22 results.

The recovery continues while the threat of industrial action is reduced

On top of a supportive Q3, the group enjoys an encouraging booking outlook for Q4, despite a capacity schedule that continues to lag. The recently-upgraded FY22 guidance was maintained, hence we expect no major change in either the consensus or our valuation.

Workforces draw first blood amidst pay fights

The group has reached an agreement with ver.di on a noticeable remuneration increase for ground staff, while further strike actions and/or weighing staff costs remain a concern as negotiations with other unions are still in place.

Crystallising mid-term achievements

The stockmarket welcomed the group’s supportive Q2 results, which returned to positive for the first time since the pandemic. An unchanged FY22 capacity schedule, despite airport chaos and a clear FY22 financial outlook (roughly in line) demonstrated its solid operational management and confidence in making the group great again. The hiring plans look aspiring but the risks of further strikes and/or heavier labour costs remain. We expect an upgrade in the consensus and our estimates.

Rising fuel prices might weigh on profits, despite the upgraded capacity schedule

For the past quarter, the Lufthansa group delivered a weaker-than-expected adjusted EBIT. Despite the lack of precise financial guidance for the FY, the upgraded capacity schedule and the well-furnished workforce are encouraging. The lower-than-peers fuel hedging remains a concern at the margin level.

Consensus-missing FY21, geopolitical uncertainties weigh

The Lufthansa Group’s FY21 profitability missed analysts’ expectations and the geopolitical uncertainties are expected to weigh considerably on the FY22 performance, leading to a negative market reaction. Our valuation update will be a mixed result of the geopolitics-driven downward adjustments and a more favourable FY24 forecast.

Meaningful help from the cost-savings advancement

Despite the weaker-than-anticipated revenue in Q3, the Lufthansa group recorded consensus-beating adjusted EBIT thanks to efficient cost management. The capacity schedule for Q4 was reconfirmed, despite a reopening of the TransAtlantic routes earlier than the group had expected. The dilution risk has been eliminated following the €2.14bn capital increase in early October.

Long-haul activities set to restore

Following the progressive reopening in many countries, the Lufthansa Group is hoping to see a meaningful increase in bookings from Q4. It is also worth mentioning the group’s good trading performance in short-haul activities seen recently. The share price has increased by 16% since mid-September and the uptick narrowed from a week to +10.5% due to the €2.1bn capital increase. We consider Lufthansa as an investment opportunity after gradually improving its net debt profile.

Lufthansa to raise €2.1bn to repay the state bailout earlier

The group has announced a capital increase of €2,140m, of which the scale is smaller than our assumption of €2,500m but the 597.7m increase in the number of new shares is larger than our assumption of 340m. We expect a lower target price due to a larger-than-expected dilution effect.

Balance sheet strengthening needs to be concretised

The group’s H1 results came in above the market’s expectations, along with a first-time positive adjusted FCF, narrowed net debt and faster-than-expected staff cost downsizing. However, the market did not applaud these, due to the unsurprising H2 guidance, despite a seemingly better forecast, and no meaningful update on the critical capital increase plans and the projected divestitures.

Mid-term ambitions set, recap being prepared

The Lufthansa Group announced its mid-term guidance for 2024, which is above consensus and our estimates, and communicated preparatory actions for a potential capital increase.

Encouraging cost management, trimmed capacity outlook

The Lufthansa Group delivered a better-than-expected set of underlying Q1 results, thanks to stricter cost control and good performances from the cargo and MRO segments. However, despite the group’s expectation of further cost efficiencies and supportive headcount restructuring, the downwards adjustment to the capacity guidance for FY21 disappointed the market. The group is eyeing a capital increase to help it achieve its aim of early repayment of the State Aid.

Improved cash management and constructive recovery plans

The Lufthansa Group delivered underlying FY20 results which beat the market, thanks to better cost control, and aims to reach cash breakeven by next year. Its encouraging forecast with a clear recovery roadmap is another positive. However, today’s share price is negatively impacted by Germany’s announcement of a lockdown extension, especially noting the group’s considerable dependence on long-haul revenues.

Lufthansa completes the sale of its majority stake in LSG Europe

It seems that the transaction will not lead to any profit impact or book gain/loss but the disposal is expected to improve the group’s profitability.

Hybridan Small Cap Feast - 21 Feb 23

21 February 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objec

Strong FY22 overshadowed by a soft margin outlook

Entain reported estimate-beating FY22 earnings. Net gaming revenue (NGR) increased by 12% in the year, driven by a 66% rise in retail. BetMGM performed strongly and is expected to be EBITDA positive in H2 2023. Entain completed five transactions during the year, further diversifying its revenue base. Underlying EBITDA was up 13%, and adjusted diluted EPS up 15%. However, the guidance was softer than expected and should result in a low single-digit cut to our FY23 estimates.

SHORE CAPITAL - ScS Group+ (SCS, House Stock at 180p)

LIBERUM: Tortilla Mexican Grill* - Costs under control, rollout on track

LIBERUM: Ten Entertainment Group* - Value pricing and innovation driving higher sales density

H1 performance below expectations; strong start to Q3

JDW’s H1 FY23 performance was below our expectations. Compared with FY19, the group’s lfl sales grew by 5% and the adjusted PBT was down 90.9%. Investors cheered the market outperformance during the initial seven weeks of Q3 (+14.9% yoy). The easing of supply chain issues is also a positive. However, the c.10% jump in the stock price jump seems something of an overreaction. Volumes remain under pressure and inflationary/macro-economic headwinds are here to stay, at least in the near-term. We mai

Hybridan Small Cap Feast - 13 Mar 23

13 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv

Inchcape PLC (INCH LN) - FY22 results – small beat to forecasts

Inchcape’s FY22 results are ahead of Zeus forecasts on most measures, with a strong performance across all regions. Underlying trading is said to be in line with expectations, and we don’t anticipate much change to headline forecasts. We remain comfortable with our medium-term SOTP valuation estimate of 1,436p.

BOTB - Beats forecasts, £6.275m return of capital announced

BOTB prelims were slightly ahead of our forecasts, which we recently raised post the May trading statement. Trading continues to normalise despite the uncertain consumer outlook, driven by constant fine-tuning to changing market conditions. BOTB also declared a 6p/share (£0.565k) final dividend and a £6.275m return of capital via tender offer, equivalent to 66.7p/share; and 72.7p and £6.84m combined. We have increased our EPS (Dil. Adj.) forecasts by 23% to 53.9p from 43.9p for FY23E, and by 21%

Hybridan Small Cap Feast - 22 Mar 23

22 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv

SHORE CAPITAL - Marks & Spencer+ (MKS) - House Stock at 142p - FY23 and FY24 upgrades!

Hybridan Small Cap Feast - 27 Mar 23

27 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv

Pendragon (PDG LN) - PBT slightly ahead, strategy progressing

Pendragon has released FY22 results slightly ahead of Zeus estimates set at the 25 January trading update. Underlying PBT (cont. ops) was £59.1m, ahead of our £57.0m forecast and ahead of the £55.3m we forecast at the release of FY21 results on 23 March 2022. This is despite headwinds from cost inflation and faster than expected interest rate rises. Through the year, the Group has made significant strategic progress in relaunching its omnichannel used car proposition, CarStore, and investing in

ME Group - Positive trading momentum has continued

ME Group has confirmed that the strong recovery seen across Continental Europe in H1 has continued throughout H2. Consumer demand has been stronger for all the Group’s services. The Asian market has remained more subdued due to pandemic restrictions remaining in place for longer than in the Group’s other regions. Updated guidance details revenue is now expected to be between £256m and £262m (our forecast £259m) and EBITDA between £82m and £85m (our forecast £84m). Hence, we make no changes to th

Hybridan Small Cap Feast - 01 Feb 23

01 February 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objec