Last recommendation BDM: BUY with target price 59,8 PLN/share (2023/08/29)
BDM Comment:
The company's results for Q3'23 were below our expectations, which we perceive negatively. Over the discussed quarter, the company generated PLN 1.071 million in revenue (an increase of approximately 6,4% y/y), slightly below our forecasts.
The difference from our expectations may be attributed, among other factors, to a smaller growth in the number of flights operated (we assumed +30%y/y, while the company report indicates a level exceeding 20% y/y). In the area of airline services, the company generated PLN 1.042,9 million (+6,3% y/y), and PLN 27,6 million in the on-board sales (+12,4% y/y).
The company's profitability also turned out to be worse than our expectations. During the discussed period, the cost of goods sold increased by 10,2% y/y to the level of PLN 928,3 million, with the main factor influencing the higher costs compared to the same period of the previous year being primarily the increase in costs of external services (+24,7% y/y to the level of PLN 443,8 million) – a result of a greater number of flight operations, inflation and the need for additional aircraft rental due to delays in the delivery of B737-MAX 8 aircraft. The cost of external services in relation to airline services revenue amounted to 42,6% and, although it showed a decrease q/q (43,6% in 2Q’23), it turned out to be higher than our assumptions and significantly higher than 3Q’22 (36,3%).
Another factor negatively impacting profitability was the fuel price. Despite rising commodity prices during the high season, the reimbursement received from tour operators did not fully cover the costs of purchase (the price with customers is predetermined). The cost of materials and energy in relation to airline services revenue was 38,6% vs 33,5% in 2Q’23 and was slightly higher than our expectations. The increase in prices was partially offset by short-term transactions in derivative instruments, which generated PLN 30,2 million (vs our expectations of PLN 22 million). The company's gross sales amounted to PLN 142,3 million, a decrease of 13,2% y/y. At the EBITDA level, Enter Air reported a profit of PLN 192,8 million (-8,1% y/y), which was lower than our expectations.
The company's financial balance amounted to -69,8 million PLN, of which -77,0 million PLN were exchange rate differences from balance sheet valuation, compared to -85,0 million PLN BDM. The aforementioned SWAP valuation (fuel price hedging) generated a positive cash flow of 30,2 million PLN. The result was boosted by a gain from the settlement of entities accounted for using the equity method (9,2 million PLN – related to Chair Airlines AG), which positively surprised us (we expected an impact of around 7 million PLN). During the discussed period, the company achieved a net profit of 56,9 million PLN (a decrease of 45,3% y/y). The net profit, adjusted for the impact of exchange rate differences from balance sheet valuation, amounted to 133,9 million PLN (a decrease of 3,0% y/y). Considering that this was the most crucial period for the company's annual results, we view our expectations for the 2023 result outlined in the last report as unlikely to be achieved.
In 3Q’23, the cash flow from operating activities was 181,9 million PLN (compared to 240,8 million PLN the previous year), investment cash flow was 25,8 million PLN, and financial cash flow was -115,8 million PLN. At the end of September’23, the group had 455,5 million PLN in cash and other financial assets (+87,2 million PLN q/q).
