Finnair - Scope for improvement
Finnair reports Q4 results on Feb 13. Q4 traffic data was mostly encouraging even if European routes could still perform a bit better. We believe Finnair’s EBIT is likely to gain meaningfully in FY’25, and valuation isn’t too expensive.
Profitability to improve again starting from Q4’24
Finnair’s Q3 results were soft relative to estimates due to lower ticket prices. Q4 traffic data was however mostly encouraging especially in terms of load factors as they increased by more than 300bps y/y. The increase was mainly driven by Asian and North Atlantic routes, while European PLFs were still soft. We expect ticket prices to have now remained broadly flat y/y across the board. We estimate Finnair’s Q4 revenue to have grown 6% y/y and adj. EBIT to have gained by some EUR 12m y/y to EUR 35m. We also expect the positive turn in profitability extends throughout this year so that FY’25 EBIT could gain by around EUR 40m to EUR 178m.
The environment still allows profitability to recover
Jet fuel prices remained quite steady q/q in Q4, however there have been some gains in the past couple of months partly due to the strong USD. The associated cost pressure still doesn’t look too bad as long as PLFs continue to gain this year; from Finnair’s perspective the Asian load factors are already more than adequate, while Europe’s improvement is yet to be seen. Finnair’s capacity increases mostly outpaced demand growth last year, but the Q4 traffic data suggests this year supply growth is more limited while RPK may grow at a mid-to-high single-digit rate. A rebound in airline sector profitability is also widely expected after the softness seen last year.
Earnings multiples are not too demanding
Finnair is valued about 10x EV/EBIT on our FY’24 estimates, basically in line with its peers. The multiple is 8x on our FY’25 estimates, only slightly below peers. The valuation is thus not very cheap especially as we are estimating clear profitability rebound for this year. We are however expecting Finnair not to quite reach the recent high EBIT of EUR 184m seen in FY’23, while IATA and peer consensus estimates point to another new high level of profitability. We retain our TP of EUR 2.5 as our new rating is ACCUMULATE (HOLD) according to the updated rating methodology (see p. 4).