TRANSPORTATION: Lufthansa:FY24 (to Dec) results
(LHAGR: Baa3/BBB-/BBB-; Stable) (Equities +9%)
Results remain tad lacklustre vs. peers but support continues to come from maintenance and cargo arms. Guidance is non-specific on the bottom line outside the previous +€1.5b EBIT uplift by 2026 target. Curve already prices a recovery, reported retail buying may be supporting that but reminder 27s, Feb-28s, 29s and hybrid are NOT retail denominated (29s trade in line with the retail lines). The 32s, despite being retail, is the only bond that is showing (some) room to rally if it can deliver on the ambitious EBIT growth. Swaps is only adding +8bps for the 2yr extension from the 30s which may be dampening the retail/yield demand. Outside the convertible, it has a €750m Feb line that rolled-off which we do expect refi on. Last years issuance did come with retail denoms.
- Q4 capacity was +6%, but yields a weak -0.1%
- Unit costs ex. fuel were flat, for a welcome change
- In nominal terms, strong offset from fuel (-13%) still left Opex +6% (on the capacity increase)
- 4Q adj. EBIT margin largely unch at 5.0% (+40bps)
- Over the FY a +9% increase in capacity and +6% increase in revenues was not enough to stop FY EBIT falling -40% to €1.65b (~mid-point of guided to €1.4-1.8b) on a lacklustre 4.4% margin (-320bps)
- It will blame strikes for much of this 1H pain
- Cargo on a 7.7% margin contributed 15% of the EBIT as it rode growth in Asian e-commerce
maintenance arm Technik on a 8.5% margin contributed ~39% of EBIT
It saw +14% revenue growth this year but like peers costs matched the increase. - Within passenger airlines 3/4 of EBIT came from Swiss airlines - despite making up only 1/5 of capacity (ASK's).
- €8.1b in net debt including pension obligations, largely unch yoy
- Includes 50% equity on the €500m hybrid
- 20% fall in EBITDA taking leverage from net 1.7x to 2.0x
- It says that is "firmly in line with IG ratings" - not true, gross levered 4.2x vs. Moody's threshold of 3.0x.
- 88% of fleet owned with 85% unencumbered/not financed against
- expects to expand leased
Guidance:
- Capacity +4%
- adj. EBIT to "significantly increase" yoy
- it has reiterated the +€1.5b EBIT improvement target by 2026 (would be +90% increase on this year)
- Capex of €2.7-3.3b (€2.7b this year)
- FCF to be stable (€0.8b this year)
- Dividend pay-out of 20-40% (FY24 is at 26%/€360m)
- High 80% hedged on Fuel at $825 (spot $692)