ACCUMULATE

(PREVIOUS: ACCUMULATE)

TARGET PRICE 52,3 PLN

23 MAY 2023, 11:55 CEST

Due to the seasonal nature of the charter business, both the last and the first quarter of the year have a significant negative impact on the carrier's annual performance. However, due to the observed strong demand for Enter Air services and the resulting increase in the number of flights, both in Q4'22 and in estimated by us Q1'23 show significantly better financial results compared to the corresponding periods in previous years. Additionally, the high season looks exceptionally promising. Orders for the company's services significantly exceed its current transport capacity. Therefore, a significant fleet expansion to 32 aircraft (compared to 27 in 2022) is planned ahead of the high season. We estimate that the increase in the number of flight operations by Enter Air this year could reach approximately +25% y/y, which should result in a significant growth in financial results during this period. For the entire year 2023, we anticipate revenues at the level of 2.5 billion PLN, 273.0 million PLN gross profit, 439.0 million PLN EBITDA and 182.4 million PLN net profit. After updating the model, we set the target price at 52.3 PLN, which implies maintaining the Accumulate recommendation.

Target price [PLN] 52,3

Price upside 13%

Cost of capital 8,8%

Price [PLN] 46,2

Market cap [mln PLN] 810,2

Shares mln. szt.] 17,5

Max. price 6M [PLN] 47,5

Min. price 6m [PLN] 22,2

Rate of return 3M 41,2%

Rate of return 6M 108,0%

Rate of return 9M 106,2%

Shareholders (% of votes):

ENT Investments Ltd 51,5%

NN PTE 10,7%

Generali OFE 9,7%

Investors TFI 5,1%

Others 23,0%

Due to the seasonal nature of this business, both the last and the first quarter of the year have a significant negative impact on the carrier's annual performance. Therefore, we viewed positively the results achieved by the company in Q4'22, which exceeded our expectations and showed the best profitability in several years. During this period, the company recorded a revenue growth of 56.6% to 431.9 million PLN. Several factors contributed to such a significant increase in turnover, including an increase in the number of flights (approximately +12% y/y partly due to the lifting restrictions related to the Covid-19 pandemic), higher aviation fuel prices and the weakening of the PLN currency. The company's gross profit reached 5.6 million PLN (compared to -37.2 million PLN in Q4'21) and IFRS 16 EBITDA reached 45.4 million PLN (compared to -25.1 million PLN in Q4'21). The company's financial balance amounted to -98.0 million PLN (including 107.3 million PLN in exchange rate differences). At the net profit level, the company reported 67.9 million PLN (compared to -96.0 million PLN in Q4'21).

As we mentioned earlier, due to the seasonal nature, the low season is usually the weakest performing period of the year for the company. During this time, ENT utilizes it for preparations for the high season (fleet rewiev, etc.) and investments (such as acquiring additional aircraft, which involves prepayments). Despite the cyclicality, we expect that Q1'23 brought a significant improvement in demand for the company's services (including the effect of a strong consumer demand supported by Ukrainians, weak condition of competitors and decreasing attractiveness of local offers due to rising prices), which translated into a substantial year-on-year growth (approximately +20%) in the number of flights during this period. Taking into account factors such as the decrease in aviation fuel prices and depreciation of currencies against PLN, we estimate that Enter Air generated 308.7 million PLN in revenue (+43.5% y/y) in the mentioned period. According to our calculations, the gross profit in the past quarter amounted to -2.3 million PLN, and IFRS 16 EBITDA reached 40.9 million PLN (+125.7% y/y). Due to the positive impact of exchange rate differences (approximately 60.5 million PLN), we estimate that the company had a net profit of 22.5 million PLN in Q1'23 (compared to a loss of 68.7 million PLN in Q1'22). After adjusting of the impact of exchange differences, we forecast a loss of 27.4 million PLN (compared to a loss of 39.6 million PLN in Q1'22).

The outlook for the upcoming quarters of 2023 looks very promising. Orders for the company's services significantly exceed its current transport capabilities. Therefore, significant fleet expansion (+5 compared to 2022) is planned before the high season, bringing the total number of aircraft to 32 (including 4 new 'Max' planes and utilizing 3 aircraft through wet lease arrangements). We estimate that the growth in the Enter Air number of flight operations in this year could reach approximately +25% y/y, which should result in a significant increase in performance during this period. For the entire year 2023, we anticipate revenues at the level of 2.5 billion PLN, 273.0 million PLN gross profit, 439.0 million PLN EBITDA and 182.4 million PLN net profit.

When it comes to Poland market, the significant increase in interest in the carrier's offer can be attributed, among other factors, to strong consumer demand supported by Ukrainians and the decreased attractiveness of local offers due to rising prices. As for international markets, high inflation and Enter's attractive prices allow the company to capture a portion of orders from its competitors. A potential risk for the company is the resolution of the conflict in Ukraine, as the return of Ukrainian citizens to their homeland may lead to a decline in domestic market demand.

Valuation summary

DCF valuation

WACC calculation

Sensivity analysis

Peer valuation

Main risks:

1) COVID-19 and its consequences 2) Macroeconomic environment 3) Customer concentration 4) Market competition 5) Aircraft crash 6) Suspension of Boeing 737 MAX 8 7) Terrorist attacks and military conflicts 8) Natural disasters and epidemics 9) Changes in fuel prices 10 ) Seasonality of results 11) Interest rate risk

Krzysztof Tkocz

krzysztof.tkocz@bdm.com.pl

tel. (+48) 516 086 705

Dom Maklerski BDM S.A.

ul. 3-go Maja 23, 40-096 Katowice

GPW’s Analytical Coverage Support Programme 3.0