European transport groups suffered a 20-point drop in the 2020 crash than the Stoxx 600, but have since performed better overall than the index in each rally in the coronavirus pandemic by listing the long-term recovery.
As in all things that are repeated, “the surprise factor diminishes over time,” observes the BofA team of analysts, who analyzed in a recent report how European airlines, after taking one of the hardest blows overall from the crash of the Covid that began in February 2020 with the first wave of infections along with the rest of the travel and tourism industry, has beaten the market in the rest of the rebounds of the pandemic, up to 10 percentage points in the second wave, and is also in a position to do so in this fifth.
After assuming the hibernation of flights during the first months of the crisis, investors first monitored the liquidity and debt of airline groups to withstand the inactivity or minimal activity – currently IAG emerges as the only company in the sector that will hardly need more funding – and then they started projecting recovery.
Of course, without being able to avoid the volatility caused by the different rhythms in the removal of restrictions to travel between the countries of Europe and the rest of the world – with special attention to important markets such as the United Kingdom, Germany or the United States.
This fifth wave is a valuable sample of this trend. The Stoxx 600 sub-index that brings together airlines and other travel-related companies almost tied with its benchmark in July, despite the spike in infections. The industry cannot avoid volatility, such as that suffered by IAG at the end of the week after presenting results, but its price underlies the definitive advance of vaccination towards immunity.
The news in recent days about the exemption of restrictions to travel to or from the British Isles and the first world power with the Covid passport have led the selective sector to rebound up to 10% in the last two weeks .
The fifth wave of the coronavirus pandemic could have already reached its peak and the crucial factor in the stock market becomes the expectations of profits in the coming years. In 2021, IAG, Air France-KML and easyJet will still present negative ebitda (gross profit).
Ryanair will lead the rebuilding from this year. Some forecasts that have been met in the market: the low cost airline exceeds pre-crash prices by about 10%, while Deutsche Lufthansa, Air France-KML and IAG remain between 35% and 60% below by their higher costs and the greater weight of travel far from Europe on their business.
“The trend in bookings points to Ryanair recovering 70% of prepandemic passengers since the second quarter of its fiscal year [summer or third quarter of a normal year]”, Citi highlights as the best figure among the different European groups. “While lower costs [staff and appreciation of the pound, 8% against the euro from the minimum of March 2020] offset the pressure on prices,” continues the investment firm.
“Ryanair recently raised its passenger target for this fiscal year to 90-100,000, from the lower end of the 80-120,000 range, exceeding expectations, and we forecast 150,000 for next year,” they note in BofA.
They are the most ambitious figures in the sector, and they are not discounted on the stock market according to the PER of 2022 (times that the estimated profit is included in the share price), which is the lowest -13 times-, and which only IAG and Wizzair approach, with their 18 and 15 times, respectively.
The Anglo-Spanish group deserves the best buy recommendation from analysts . “Leverage may be close to peak if future reserves prove to be strong enough,” notes Credit Suisse. According to estimates, in 2023 ebitda will shoot up to close to 5,000 million euros.