Air Arabia poised to become a leading regional carrier

AIR ARABIA: EFG-Hermes issues upbeat investment note on carrier. (Getty Images)

Egyptian investment bank EFG-Hermes has raised its long term recommendation for Air Arabia to ‘buy’ from 'accumulate', arguing the Sharjah-based airline is well placed to become a leading carrier in the region.

In a just released note it cites an under-penetrated market, the company’s operational strengths and practices, and further potential upside from the success of its existing (and any additional) hubs/acquisitions.

In addition, the company is trading at a significant discount (after stripping out its cash) to its global peers.

Arguing Air Arabia’s long term ‘fair value’ is 1.53 dirhams (previously 1.62 dirhams) EFG Hermes believes the stock is being penalised by the negative perception surrounding the whole market. Indeed, stripping out the company’s current net cash from the market cap, the company trades on a trailing P/E of 3.8x and just 3.0x 2009e earnings.

''This appears low for such an operationally strong airline that is well positioned for the economic downturn.

''The stock offers an attractive 10.5% yield. Air Arabia has a very large cash balance (c75% of market cap) and we believe the shares are trading below their liquidation value,’’ said EFG-Hermes.

Air Arabia is also on EFG-Hermes' Focus List and its top pick in the aviation sector.

In the short term, there are limited catalysts for the shares to outperform therefore the short term ‘accumulate’ recommendation is maintained.

EFG-Hermes goes on to say that FY2008 results were marginally ahead of expectations.

Revenues of 2.07 billion dirhams (up 61% Y-o-Y) were slightly ahead of expectations at 1.9 billion dirhams, while net income of 510 million dirhams was 4% above its estimate of 491 million dirhams.

''To us, this performance highlights the airline’s operational strengths and demonstrates the company’s ability to trade robustly despite more challenging conditions.''

Despite cutting forecast load factor (passengers on seats) for 2009 to 80 percent, falling to 77.5 percent by 2013, EFG-Hermes still believes the low-cost segment of the market is under-penetrated and there is room for the segment to take market share from the conventional carriers – a development that will benefit Air Arabia.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM