Finnair - Earnings can gain again
Finnair’s results were very strong for Q4 after some more challenging quarters last year. We believe Finnair is positioned to improve again this year, but by just how much remains the key question as valuation has recovered.
Very strong figures for Q4
Finnair’s EUR 783m Q4 revenue was a bit above the EUR 769m/755m Evli/cons. estimates. There weren’t big surprises since passenger revenue as well as other sources were all only slightly higher than our estimates, but absolute costs came in as estimated and so the top line beat translated into a high adj. EBIT of EUR 48m vs the EUR 35m/31m Evli/cons. estimates. Ticket prices may now remain stable; Finnair can increase its capacity meaningfully also this year through improved asset utilization (more capacity flown itself and less maintenance issues), and since PLFs have room to improve FY’25 could see double-digit revenue growth. There are also however some cost pressures as well, and hence we believe Finnair’s FY’25 EBIT margin will remain below 6% but improve somewhat y/y.
Some earnings gains are more likely than not this year
Finnair’s ticket advances increased 33% y/y, another indication that high demand persists despite some softness last year. We estimate FY’25 adj. EBIT at EUR 181m, just slightly below the recent EUR 184m peak. In our view the combination of higher capacity and improving PLFs should give enough potential for earnings gains this year even if costs are also increasing. The earnings guidance range may remain wide until at least the summer months, but in our view the lower end looks quite cautious in the light of very strong Q4 figures.
Valuation not yet very stretched, but uncertainties remain
Finnair is valued just below 9x EV/EBIT on our FY’25 estimates; the level is marginally above peer multiples, so not very high yet also not cheap as we estimate adj. EBIT quite near the upper end of the range. Finnair may well end up around EUR 200m EBIT this year; in our view the scenario isn’t overly optimistic as it should require only rather stable and somewhat favorable development in terms of certain key factors, however it's still a bit early to rely too much on the upper end as summer months will again be quite crucial to overall performance. Our new TP is EUR 3.0 (2.5) as our new rating is REDUCE (ACCUMULATE).