Have global airline valuations bottomed yet?

28 June 2018, Global – We are launching a series of reports to track whether the global transport stocks’ valuations have bottomed out following their recent correction for your reference. In our inaugural report below, we will focus on all the 60 listed airlines around the world.

Globally, the listed airlines are still 30%-40% above their trough valuations, with the Asia Pacific airlines closer to the bottom than airlines in the other regions

The global airlines sector is trading at 2.5x Price/Book and 11.6x P/E currently, a 17% and 28% discount to its historical average valuation in the past 5 years.The sector is, however, still some way from the bottom – the global airlines’ P/B and P/E valuations are still 31% and 44% above their historical trough levels.

Chart: Global Airlines Current Valuations versus Historical Average and Trough Valuations in Past 5 Years

Global Airlines Current Valuations versus Historical Average and Trough Valuations in Past 5 Years

Chart: Global Airlines Sector: Current Price/Book Valuations (2018)

Global Airlines Sector- Current Price:Book Valuations (2018)

Chart: Global Airlines Sector: Current P/E Valuations (2018)

Global Airlines Sector- Current P:E Valuations (2018)

On a Price/Book valuation basis, the Asia Pacific airline stocks are closest to the bottom, with P/B valuations only 26% above their historical trough levels.This is followed by the US carriers which are trading at 40% valuation premium to their historical trough levels and the Latin American carriers at 61%.

10 Asia Pacific airlines and 5 North American/Latin American airlines are trading only 10% shy of their historical trough valuations

There are 10 listed Asia Pacific airlines which are already trading less than 10% above their historical trough Price/Book valuations. These include EVA Airways, Asiana, Cebu Air, Shandong Airlines, Garuda Indonesia, Bangkok Airways,  Indigo, China Airlines (Taiwan), Juneyao Airlines and Singapore Airlines. For airlines in the other regions, WestJet, Air Canada, Azul, Spirit Airlines and Alaska Air are also trading at less than 10% above their trough valuations.

In contrast, AirAsia Indonesia, Qantas, Nok Air, AirAsia Group and Air New Zealand are still trading well above their historical trough P/B valuation levels among the Asia Pacific airlines; and Wizz Air, Aeroflot, Norwegian Air Shuttle, Air France KLM and Southwest among listed airlines in the other regions.

Chart: Asia Pacific Airlines – Current Price/Book Valuations versus Trough Valuations in Past 5 Years

Asia Pacific Airlines - Current Price:Book Valuations versus Trough Valuations in Past 5 Years

Chart: North American, European, Latin American Airlines – Current Price/Book Valuations versus Trough Valuations in Past 5 Years

North American, European, Latin American Airlines – Current Price:Book Valuations versus Trough Valuations in Past 5 Years

Valuations of most of the listed airlines around the world have fallen below their 5-year historical average levels

Overall, most of the global airlines’ valuations have already fallen below their 5-year historical average valuations following the recent market correction. Among them, Spring Airlines, Indigo, Juneyao Airlines, Bangkok Airways, Garuda Indonesia, Air Canada, Air France-KLM, Spirit, Royal Jordanian and United Continental Airlines are trading at the deepest discounts to their 5-year historical average valuations.

Chart: Asia Pacific Airlines – Current Price/Book Valuations versus 5-Year Average Historical Valuations

Asia Pacific Airlines – Current Price:Book Valuations versus 5-Year Average Historical Valuations

Chart: North American, European, Latin American Airlines – Current Price/Book Valuations versus 5-Year Average Historical Valuations

North American, European, Latin American Airlines – Current Price:Book Valuations versus 5-Year Average Historical Valuations

Note: Stocks with upside of more than 10% based on our fair value are assigned an Outperform rating. Stocks with downside of more than 10% based on our fair value are assigned an Underperform rating. Stocks with upside or downside of less than 10% based on our fair value are assigned an In-line rating. These are Crucial Perspective’s proprietary rating classifications and by no means serve as investment recommendations.

 

Independent Research Declaration: Crucial Perspective does not own any position in the equities featured in this report nor have we received any compensation for writing this report. 

 

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