Wednesday 18 June 2014

Analysis of Lufthansa 2014

Lufthansa, a German aviation company
Company: Lufthansa

Business: A German aviation company that are divided into five segments: Passenger Airline Group (transporting over 100 million people per year to 106 countries and 274 destinations), Logistics (airfreight to around 300 destinations), Maintenance, Repair & Overhaul (repair services to over 770 airlines), Catering (30% market share with LSG Sky Chefs) and finally IT Services (consultancy to 300 other airlines as well as to 150 non airline customers). 

Active: World wide with presence in over 100 countries.

P/E: 23.7

Here you can find the previous analysis of Lufthansa.

Contrarian value of P/E, P/B, ROE as well as dividend for Lufthansa

The P/E has become far too high with 23.7 which was based on decreased earnings in 2013. The P/B is ok with 1.2 but still it is no longer a buy according to Graham. The earnings to sales are pitiful with 1% (last analysis they were at least at 3%) and the ROE is also very poor with 5.2%. The book to debt is very low with 0.3 and have become much worse since the last analysis due to a significant increase of debt with a decreased book value. Not good! In the last six years they have had a yearly growth rate of 3.2% which is ok and this then gives is a motivated P/E of 12 to 15 which means that Lufthansa is today highly overvalued by the market. Last year they paid no dividend but this year they did in the size of 2.8% which is ok but it did represent 66% of their earnings which is far too high and their earnings must improve!

Comment: What is interesting here is that even though they have created a more stable company with the huge maintenance and catering they still get highly influenced when there is problems with the passengers and logistics segments as they had in 2013. The start of 2014 have also been bad for Lufthansa and the share price has dropped dramatically during the last weeks due to an Ad-Hoc release saying they will have reduced profit.

Conclusion: I still find Lufthansa hard to get a grip on and even though the cycles might have been smoothed out they are still very much present. This time Graham gives a no go and so do I because the P/E is too high, I do not like that they increased their debt, I do not like that they are flirting with shareholder by giving dividends that they are not really able to afford.

If this analysis is outdated then you can request a new one.

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