Aviation analyst Jacob Pedersen was surprised by how large the shortfall SAS expects in the future. He is also skeptical of the company’s announcement that it will make money in 2024.
We maintain a sell recommendation on SAS stock after the company lifted the veil on its earnings forecast for the coming years.
It will also be red in 2023, and the relief for existing shareholders will be massive.
That’s what aviation analyst Jacob Pedersen at Sydbank wrote in a recent analysis Saturday after the crisis-stricken company reached a comprehensive update regarding its bankruptcy process.
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– It continues on a larger scale than we expected
Among the news from the stock exchange’s announcement is that SAS shareholders will be diluted by more than 95 percent, as well as that the airline expects the deficit for the 2021/2022 fiscal year to be SEK 8 billion.
– It’s significantly worse than our estimate of SEK 5.8 billion. However, the poor traffic and earnings numbers for August indicated that we were very optimistic. But in any case, the deficit will be much larger than feared, the Sydbank analyst wrote.
– It’s hard to see how SAS could exit the fiscal year with a positive score, he adds.
SAS has different accounting years from November to October.
The result in the 2022/2023 financial year is expected to be between minus four and five billion Swedish kronor. Sydbank was forecasting SEK 1.7 billion.
– So the poor result persists on a larger scale than we would expect in the near future, Pedersen points out.
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SAS shareholders diluted by more than 95 percent
– skeptical
For fiscal year 2023/2024, SAS came with an expectation to end with a pre-tax profit.
Our experience with the airline industry is that two years is a long time in an unpredictable industry. We hope to be pleasantly surprised, but until further notice, we are skeptical about whether SAS can turn a profit in 2023/2024, the analyst writes.
He asserts that the SAS stake is “only for the very short-term and risk-averse”.
The coming quarters will be characterized by poor results, massive easing and possibly a decline in the European economy as well as consumer desire to travel. There are no perfectly good arguments for buying SAS stock.
Will collect money in 2023
SAS will cut costs by 7.5 billion SEK and bring in at least 9.5 billion SEK in new capital. The company also plans to convert 20 billion Swedish kronor of debt into equity.
This will reduce values for current owners, SAS says.
“The conversion of debt into common capital as well as the expected acquisition of capital of at least SEK 9.5 billion in new equity are likely to result in dilution for existing SAS shareholders by much more than 95 percent,” the company wrote in the report. .
“Assuming that the reconstruction plan is successfully implemented, SAS expects to achieve a strong financial position, and the company aims to be virtually net debt-free by the end of the 2025/2026 fiscal year,” SAS wrote.
The company expects to conduct a competitive capital increase operation during the first half of 2023.
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