Finnair - Further growth supports earnings

Finnair’s Q4 figures were slightly soft relative to estimates, however there were no big surprises. Capacity and demand continue to grow this year, which still lifts earnings a bit even if there’s no more such clear volume surge to bank on.

A very slight earnings miss, but no major cost surprises

Finnair’s EUR 727m Q4 revenue didn’t quite meet the EUR 749m/745m Evli/cons. estimates as passenger revenue fell almost EUR 30m short of our estimate due to a relative softness in unit yields. Fuel costs were lower than we estimated while other operating expenses were higher, but the overall cost structure was close to what we expected. The EUR 22.5m adj. EBIT thus landed relatively close to the EUR 26.4m/28.3m Evli/cons. estimates. Finnair continues to pay close attention to load factors and unit yields as passenger volumes have mostly stabilized after the recent surge driven by pent-up demand.

Around 10% capacity growth in line with sector estimates

Demand and supply growth now appear quite even going forward, and Finnair’s capacity guidance for FY ’24 is roughly in line with estimates provided by IATA; all markets continue to contribute growth, but Asia still has most potential. Yields are already high and can be expected to remain stable assuming no major changes in fuel prices. We estimate 7% revenue growth for this year, which is in line with Finnair’s comments and peer group estimates. The EUR 184m adj. EBIT seen last year is already a high benchmark, but in our view profitability has room for marginal improvement this year as growth continues widely while previously achieved cost measures mostly hold. Last year’s quarters do not yet pose exceptionally high comparison figures, so further gains could be seen throughout the year, but the FY ’24 EBIT will still be largely earned over the summer season.

EBIT multiple not too high compared to peers

Finnair is valued a bit below 8x EV/EBIT on our FY ’24 estimates. The multiple is line with peers, whereas we estimate 10bps EBIT margin improvement while the expectations for peers are significantly higher; our estimated EUR 18m y/y EBIT improvement stems from additional revenue growth as we expect costs to remain stable relative to volume. We don’t thus consider Finnair’s valuation demanding. We retain our EUR 0.04 TP and BUY rating.

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