Analytical Report – Summary - Enter Air – WSE:ENT
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The report was prepared by Dom Maklerski BDM at the request of the WSE as part of the Exchange's Analytical Coverage Support Programme
ACCUMULATE
(PREVIOUS: ACCUMULATE)
TARGET PRICE 24,0 PLN
26 OCTOBER 2022, 11:10 CET
We issue a Accumulate recommendation for Enter Air with a target price of 24,0 PLN/share, which is 11% above the current market price (the fall in the valuation is related to an increase in the risk-free rate and the restoration of comparative analysis in the final valuation). We positively assess the company's results for Q2'22, which in terms of gross result and EBITDA turned out to be significantly better than our expectations. The management board's outlook for 2H'22 and subsequent periods after the results conference was optimistic. Enter is constantly observing an overdemand for its services, and its low-cost structure is a significant advantage over foreign competition, and thanks to this, the carrier wins many tenders with a lower price and higher quality of services. Moreover, we are counting on record results for Q3'22. During this period, we expect more air operations than the best so far Q3'19 and better utilization of the fleet. We forecast PLN 275.8m in Q3'22 EBITDA IFRS 16 (+ 33.8% y/y).
Q2'22 results
The company's results for Q2'22 exceeded our expectations, which we received positively. The company's revenues in this period amounted to PLN 602.6m (+ 170.6%) and were in line with our expectations. The biggest positive surprise for us turned out to be the significantly lower cost of external services compared to our forecasts. This position includes, among others maintenance costs and some salaries (the company communicated during recent meetings with investors about the optimization of crew salaries, and the implication of which in our model improves the margin). Carrier's gross result in the reported period it amounted to PLN 68.7m (vs. -PLN 14.3m our expectations), and on the EBITDA level, the company generated PLN 112.5m (vs. PLN 27.8m BDM).
Q3'22 record results
Q3'22 brought a further improvement in demand (this is partially confirmed by readings published by Ryan Air; link), which significantly translated into an increase in the number of flights performed in this period (both y/y and vs the record-breaking 2019). In the summer season, the company used the entire available fleet of 25 aircraft (23 Boeing 737-800 aircraft and 2 737 MAX 8 aircraft) and two additional wet-lease machines, and the demand for its services exceeded the fleet's operational capabilities. We expect that in the discussed period, the utilization of the fleet was at a much better level, and the efficiency (number of hours flown per plane) exceeded even that of 2019. We estimate that in Q3'22 Enter Air generated PLN 1,153.4 million in revenues (+114.8% y/y). According to our calculations, the gross sales result in the last quarter amounted to PLN 233.4 million. At the level of IFRS 16 EBITDA, we forecast PLN 275.8m ( 33.8% y/y).
Risk factors
Despite the lifting of pandemic restrictions in most countries, the potential next waves of COVID-19 and their consequences are still the main risk to our forecasts. In addition, the above-mentioned deteriorating macro environment and changes in fuel prices (passed on to the customer) may in subsequent periods have a negative impact on the demand for trips abroad and the reconstruction of tourist traffic. However, we believe that the still observed over-demand and the competitive advantage of the company's services (in particular the lower price) will allow it to effectively use its fleet in subsequent periods.
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
Analyst: Krzysztof Tkocz
GPW’s Analytical Coverage Support Programme 3.0
