Consensus is expected to move closer to the guidance

The group’s reported a consensus-meeting Q3 adjusted EBIT and an above-consensus margin, while the adjusted FCF was 13% weaker than the market’s expectations. As the only flag carrier group providing concrete financial objectives, Lufthansa’s maintained 2023 guidance was marginally below the pre-publication estimates. Today’s positive share price performance might be explained by the considerable lag between the unchanged 2024 margin target and the pre-publication consensus (6.9%, vs 8% guided).

In-line Q2 and FY guidance but concerns about FCF generation

The group reported record and consensus-matching Q2 earnings, noting that the outperformance in passenger airlines was partially offset by the larger-than-expected normalization-led fallback in cargo. The share price performance was affected by the considerably-higher unit costs and the consensus-missing FCF generation. More concrete FY financial targets have been provided and are consistent with the consensus, despite a less-favourable traffic schedule. We have upgraded our 2023 estimates to al

Robust passenger activities to compensate for the decelerating cargo business

The group posted consensus-missing revenue in Q1, while its adjusted EBIT was more or less in line with the consensus in all segments. The passenger activities performed vigorously, for which the momentum should extend into the upcoming summer and offset cargo’s fall-back. The guidance for the following two FYs has been reconfirmed and a dividend distribution is hoped to be resumed in 2023, one year earlier than previously anticipated. We expect an upgrade in the consensus and our estimates.

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.

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PROGRESSIVE: Zoo Digital: H1 24 – positive news, short and long term

ZOO has announced H1 24 results in line with guidance at the recent AGM. We welcome the news earlier this month that the US actors’ strike has ended. This suggests that revenues could return to historical levels in the relatively near term, and that ZOO was correct to maintain capacity and capability to deliver during the recent hiatus. Subdued workflows have led to a significant EBITDA loss in H1 on revenue of $21m; but given the sequential month-on-month improvement expected, we maintain reven

easyJet remains optimistic about the new FY, despite the Q1 challenges

easyJet’s FY23 results were broadly in line with the preliminary figures and the market’s expectations. The group is resuming a regular dividend distribution and expects to raise the pay-out next year. It continues to believe in a positive outlook for the FY, despite the Q1 net loss affected by the conflicts in the Middle East. No major changes are expected to our current estimates.

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Initial Equity Trading Comments - 1 December 2023

HeiQ - Reorganising, right sizing and re-focusing

HeiQ has published its FY22 and H1/23 accounts, noting difficult market conditions for its revenue generating businesses, which has impacted revenue growth in these periods. In light of the market deterioration, the company has taken steps to restructure the group to be more efficient, while implementing expense containment measures. The sudden market disruption in H1/23A saw HeiQ move into a net debt position of $2.1m. While we model the company becoming operating cash flow positive in FY24E, o

ME Group - Price rises and increased usage driving growth

ME Group has reported a strong set of H1 results with sales up +25%, adj. PBT +68%, adj. EPS +60% and ongoing DPS +14%. The strongest performances were in photobooths in Europe, which benefited from price rises and increased volumes, and laundry in the UK, where there was a +11% increase in the number of machines. This progress was achieved despite a near flat installed base in photobooths, with the anticipated roll-out of next generation photobooths delayed due to supply delays, and a steady in

Focus on ‘sound’ long-term strategy overshadows in-line Q323

Entain reported largely in-line Q3 23 trading numbers, accompanied by an implied FY23 EBITDA downgrade. The latter was a result of unfavourable sports results as well as persistent regulatory headwinds. However, the bigger news was the update provided on the firm’s strategy and longer-term targets. While this means the near-term growth and margin trajectory will be slower than previously anticipated, the longer-term targets offer strong upside potential considering the currently-beaten-down valu

Assessing the key investment & valuation dynamics

We view XP Factory as a genuine growth stock. In this detailed note we show how it is capitalising on the secular themes driving the competitive socialising sector and generating superior site returns, organic growth and customer reviews. This is further enhanced by a strong set of interims, with an acceleration of LFL over the summer and no change to FY Dec’23 expectations. Prospects of a healthy future is backed by our base case 3-year EBITDA CAGR of 44% on steady state expansion, which rises

Topps Tiles - Early delivery

Topps Tiles’ (TPT’s) FY23 results confirm the strong progress made, with its focus on growing profitable market share by developing and diversifying its operations. The success is shown in record revenue for the Topps Tiles branded stores and the group as a whole, aided by the achievement of its ‘1 in 5 by 2025’ market share goal two years earlier than predicted. An improving cost environment has translated into an underlying improvement in gross margin through the year, as expected by manageme

SSP Group+ (SSPG, House Stock at 208p) - FY23F results preview

LIBERUM: The Liberum Leisure Digest: Encouraging updates, falling markets

A stronger close to FY22/23, but investors remain unconvinced

M&B’s FY22/23 performance was slightly stronger than AV and the market’s expectations. Adjusted operating profit and EPS were ahead by c.2.5% and c.11%, respectively. While the publican sustained lfl momentum during the FY23/24, the stock price is down 8% as we write. Investors may have been spooked due to stronger cost headwinds for the FY23/24 and the £131m impairment on properties during the FY22/23. We see today’s share price decline as an over-reaction. We will improve the financial estimat

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