Finnair - Solid high profitability

Finnair’s Q3 EBIT was impressive even if higher fuel prices already had some adverse impact. The company faces much more demanding comparison figures next year, but EBIT should remain high despite the slightly more challenging environment after the recovery and high summer season.

Guidance range still wide due to fuel price uncertainty

Finnair’s EUR 817m Q3 revenue landed close to the EUR 826m/804m Evli/cons. estimates. Profitability was expected to be high, yet the EUR 94m adj. EBIT still managed to top the EUR 74m/84m Evli/cons. estimates even if higher fuel prices began to gnaw margins towards the autumn months. Finnair was able to maintain the EUR 180m midpoint of its EBIT guidance, despite the rise in fuel prices, although geopolitical tensions have lately elevated fuel price uncertainty. Profitability has fully recovered, and in our opinion it doesn’t seem too hard for Finnair to reach the upper half of its profitability guidance range despite the fact that it remains quite wide given the prevailing circumstances.

Ex-fuel CASK stays competitive, some more revenue drivers

We see (absolute) operating expenditure levels rather stable from now on, which should help keep unit costs competitive as capacity increases further, while there will be more fuel cost pressure at least in the short term. Finnair’s volumes have mostly recovered to their new normal level, yet Asian and European (short haul) routes should still support growth next year while in our view there’s more uncertainty around e.g. North Atlantic volumes. Unit yields should have some further marginal upside in the short term, but there’s also room for additional price hikes in the case of extended fuel price inflation. Next year Finnair will face comparison figures no longer that easy to beat, but pricing focus and cost measures alike should secure relatively high profitability going forward.

Valued neutral around the assumption of roughly 6% EBIT

In our view Finnair’s revenue should grow a few percentage points next year (due to modest gains in volumes and yields), yet the favorable profitability impact may be mostly offset by higher fuel prices. We thus estimate Finnair’s FY ’24 EBIT stable at around EUR 190m, or a bit above 6% in terms of EBIT margin. On that basis Finnair remains valued some 7x EV/EBIT, a level in line with peers. We retain our EUR 0.35 TP and HOLD rating.

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