Aeroflot stock hit new maximum on the Moscow Exchange

The previous high of 112 rubles was set in January 2008 (Photo by Leonid Faerberg / transport-photo.com)

Aeroflot stock (AFLT) closed at 117 RUR ($1.80 under the current exchange rate) on Monday raising the company’s market capitalization up to 129.9 billion RUR ($2.03 billion), Vedomosti reports. That this is the best performance that Aeroflot has shown since the company’s listing in 2000. The previous high of 112 rubles was set in January 2008. After the publication of the company’s monthly and 8-month operational performance reports last Friday the stock index went up to 114 RUR and continued to grow on Monday.

Industry experts say the growing capitalization is the result of a dynamic improvement of operational and financial performance of Russia’s national air carrier.

The VTB Capital advisers reconfirmed their BUY recommendation with a target price of 150 RUR for AFTL (previous being as high as 114 RUR).

The airline demonstrated efficient cost management which allowed it to exceed the consensus EBITDA estimates in the first half of the year by 57%. The YoY growth rate (IFRS) increased 2.3 times, to 30 billion RUR, VTB analyst Elena Sakhnova says. The nine-month financial reports covering the entire high season (May through September) might trigger another rally, she adds.

“Aeroflot’s results in August and for the first eight months of the year (passenger traffic including subsidiaries grew correspondingly by 6.4% and 8.9%, to 28.6 million people) are not greater than those demonstrated in July and within the first seven months of the year (a 5.4% and 9.4% growth respectively). However, the market is getting the idea that better operational performance will lead to an improved financial result. The company’s H1 report significantly exceeded expectations,” Raiffeisenbank analyst Konstantin Yuminov explains.

As a rule, increasing a share on a highly-competitive air transport market would mean lower profitability, but the fact that Aeroflot has been losing money for the past two years creates a low-base effect. In addition, the national carrier will not have to sustain significant losses due to fuel hedging contracts this year (most of them expired in 2015), Yuminov says. The company lost 25 billion RUR ($390.676 million) in hedging contracts in 2014-2015.

In 2013 Aeroflot paid 2.77 billion RUR ($43.287 million) in dividends, whereas in 2014-2015 the company was unprofitable. After two years now the company might start paying out dividends again and distribute up to 25% of company’s net income (IFRS) in 2016. “Taking into account a rather good situation with the net debt, Aeroflot might pay out 80 million USD in dividends in 2016 which will provide a PE ratio of 4%,” Sakhnova says. Thus, the company’s net profit is expected to reach 320 million USD. Compared to the average market dividend yield of 4-5%, Aeroflot’s 4% will be a good result, Yuminov points out.

According to the report, the national carrier’s net debt got reduced by 38% and reached 122 billion RUR, the net debt to EBITDA ratio decreased from 3.4 to 1.6. The ruble appreciation and early loan repayment reduced the company’s debt burden, the company representative explained. No details are given though whether the carrier will continue to reduce the amount of debt further on.