Finnair: Earnings rely more on H2 - Evli

Finnair reports Q2 results on Jul 19. The market still looks stable, however there have been some estimate cuts lately and Finnair may not see any further gain in EBIT this year.

H1 a bit soft, H2 should see higher RPK and PLFs

Finnair’s Q2 traffic data came in softer than we expected as RPK was 9% below our estimate. European PLFs declined around 800bps y/y in April and May, although they did increase sharply q/q in June. Finnair’s capacity continues to grow this year in Asia and Europe, thus further RPK growth and stable PLFs are important especially within the latter routes. In our view this shouldn’t be too hard to achieve as e.g. IATA sees sector PLFs improving a bit more this year. We estimate Q2 EBIT at EUR 57m.

Capacity to be allocated to some less-competed routes

Finnair will issue FY ‘24 guidance in connection with the report, and we expect the EBIT range’s midpoint to land close to the EUR 184m comparison figure. We note H2 PLFs should stabilize and even improve given the softness seen in H1 as well as the somewhat undemanding ratios seen last year. The aviation market has largely normalized from the perspective of supply and demand. The summer season continues to be crucial for profitability, although there are some tentative signs the profile of trips is changing as seen e.g. in Finnair’s latest additions to Northern Norwegian destinations and flights to certain Mediterranean places outside the busiest summer months. The trend could help make earnings less dependent on Q3 over the long-term, however we estimate Q3’24 EBIT at EUR 95m as we see the seasonal profile not much changed from the previous year.

Multiples not high, but sector estimates have been trimmed

Airline valuations have declined recently as growth and margin estimates saw some downward revisions, however Finnair’s peer group as well as IATA estimates still point to high single-digit growth this year while profitability should continue to improve slightly. We estimate Finnair’s FY ’24 revenue to grow 3.5% and expect EBIT to decline a bit to EUR 178m, which implies an EV/EBIT of above 8x. The multiple isn’t yet very challenging, especially as our estimates appear on the cautious side, however it already represents a premium to the around 7x typical peer levels. Our new TP is EUR 3.0 (3.5); our rating is now HOLD (BUY).

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