October 1, 2022

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Azul (BLUE4) Surprises Above Ebitda, Stock Closes With Nearly 10% Jump But Analysts Are Split On Air

Azul (BLUE4) Surprises Above Ebitda, Stock Closes With Nearly 10% Jump But Analysts Are Split On Air

São Paulo – While the numbers of Gol (all 4) received on Tuesday (9) Didn’t get too excited Investors in that session, the opposite happened with Azul (blue 4). After the release of third-quarter results on Thursday morning (11), the papers hit a double-digit maximum of 12.63% at R$29.78. Newspapers closed 9.83% higher at R$29.04.

At first, the numbers may seem negative, since then The airline posted an 82.4% increase in net loss, Total losses amounted to R$ 2.196 billion between July and September 2021, the performance, according to the company, was affected by the increase in financial expenses, cash and exchange changes.

Total earnings before interest, taxes, depreciation and amortization (Ebitda), in turn, amounted to R$ 485.6 million in the period, while total net revenue amounted to R$ 2.71 billion, an increase of 237, 4% over the same period of the previous year, data that encouraged. investors.

The Itaú BBA highlighted that Azul posted strong results in the period, with earnings before interest and taxes (Ebit) and Ebitda back in positive territory, supported by lower costs.

The bank notes that revenue per kilometer per kilometer (RASK) has exceeded 2019 levels for the first time since the onset of the Covid-19 pandemic, and cost per kilometer per seat (CASK) and ex-CASK fuel have declined despite fuel price pressures and unfavorable exchanges. environment rate.

Analysts noted that “seat cost decreased 13.5% qoq and 19.6% excluding fuel, with a greater easing of fixed costs, indicating that operating leverage will improve with demand.”

On the other hand, non-cash financial losses of R$1.5 billion amid depreciation in real affected the net balance sheet, increasing the loss. As a result, net debt has increased significantly.

Analysts stress that they are closely monitoring Azul’s financial position, taking into account R$3.5 billion in leasing due in 2022 and R$3.9 billion in 2023, as well as the amortization of non-aircraft debt.

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The BBA has a Market Performance Recommendation (performance in line with market average) for Azul, with a 2021 target price of R$41 for B3-traded assets and $23.80 for US-traded securities.

“Azul has a diversified and adequately sized fleet, which has historically contributed to Azul having a higher CASK fleet than its peers; it has also played a key role in helping the company weather the pandemic and restore profitability. The company also has a unique position on most of the routes it operates and an extensive network through its hubs. We believe that these attributes not only play a critical role in strengthening the company in the face of the current scenario of uncertainty, but will remain Azul’s main competitive advantage in a natural environment.”

They indicated that they see a significant rebound in Ebitda margin (Ebitda on net revenue), to 27.8% in 2022, with margins approaching pre-pandemic levels in 2023. Additionally, they also believe that shrinking more profitable companies can offset this portion. Partly by increased entertainment traffic, efficiency gains, fleet diversion effects, and positive competitive dynamics (reduced industry capacity, tariff rationality, reduced network interference), particularly given the potential for mergers and acquisitions.

However, they appreciate that despite the many measures Azul has implemented to protect its liquidity and resilience to date, the still-uncertain future scenario, combined with the company’s scheduled amortization, leads us to consider that its position The financial system must continue to be monitored. We do not rule out the possibility
The company’s access to the capital market in the near future is likely, among other reasons, to support any mergers or acquisitions being considered,” he assesses. It is worth noting that Azul’s interest in purchasing Latam Airlines, which is undergoing judicial recovery, is receiving attention. news.

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Bradesco BBI, in turn, is more optimistic about the paper, as it maintains an outperformance (above market average) recommendation for the assets, despite lowering the target price from R$70 to R$60, which is a 127% upside potential. previously. Close today. The drop in the target, in turn, is due to the more complex macro scenario, higher oil prices, and increased debt.

Bank analysts also highlighted the company’s above projected Ebitda and that the price of airline tickets was only 2% lower than the pre-pandemic level in the third quarter of 2019, while there was an increase in freight revenue, a balance sheet line that is viewed with optimism from before the company.

They noted that higher jet fuel costs and employee expenses were offset by greater cost mitigation, with the company expanding capacity on a quarterly basis and using less fuel-efficient aircraft. On the other hand, higher interest rates and currency depreciation affected the financial results severely.

In addition, they assessed, Azul managed to maintain a stable liquidity position in the quarter, despite the depreciation of the riyal by 8.7%, which led to an increase in net debt to R$20.7 billion, from R$18.5 billion in the second quarter of 2021.

“In our view, this result confirms that Azul’s overlap is only limited in ways with Latam
They point to the airline group, which is the most active airline in increasing its production capacity in Brazil. In this regard, they assert that despite the financial leverage, Azul should go ahead with its proposal to acquire all
Grupo Latam Airlines or only the part in Brazil, the proposal is expected to be announced in December.

In turn, Morgan Stanley, in turn, maintained a low recommendation (below market average exposure) for alternative interactions (in practice, shares of the Brazilian company ETAs) with a target price of $17, and there is still a potential for a 17% increase compared to closing The day before, which also highlights the debt problem.

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The bank’s analysts highlighted that the market could react well (as it did) to a good operating pace.

However, the results also reinforced the very difficult scenario facing the airline from a cash flow and liability perspective with the weaker reality. Along with the R$1.9 billion increase in net debt, we also noted a significant increase in annual aircraft leasing amortization, as well as an increase in the annual schedule of payments for financial liabilities,” analysts remind us.

Regarding the operating results per se, “we recognize that the value of Ebitda of R$486 million indicates that the airline could deliver about R$700 million of Ebitda in the fourth quarter of 2021 (which management indicated could have been achieved before a few years), but we still see the company’s target of another R$4 billion for 2022 as a huge challenge, given the high oil prices today and given that it is dependent on significant capacity expansion and Ebitda margins next year.” This is in a context where the recovery in international travel is likely to be constrained by real weakness and other factors.

Despite the strong rally in assets during the session, the view of analysts on the assets remains divided. According to a compilation compiled by Refinitiv, of the 12 homes covering the BLUE4 sheet, six have a buy rating, three have a neutral rating and three have a sell rating. The average target price is R$44.67, or a 69% increase over the previous day’s close.

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