Wednesday, May 20, 2015

Analysis of Lufthansa 2015


Lufthansa, a German aviation company

Company: Lufthansa

ISIN DE0008232125 | WKN 823212  

Business: A German aviation company that are divided into five segments: Passenger Airline Group (transporting over 100 million with Lufthansa, SWISS, Austrian Airlines, Germanwings, Brussels Airlines, edelweiss, jetBlue and SunExpress), Logistics (airfreight to around 300 destinations), Maintenance, Repair & Overhaul (repair services to over 800 airlines), Catering (30% market share with LSG Sky Chefs) and finally IT Services (consultancy to 300 airlines and 150 other customers).  

Active: Over 100 countries world wide.

P/E: 115.9

Here you can find the previous analysis of Lufthansa 2014

contrarian values of P/E, P/B, ROE as well as dividend for Lufthansa

The P/E for Lufthansa is, due to very poor earnings, extremely high with 115.9 but the P/B is looking pretty good with only 1.6. Due to the poor performance they fall outside of Grahams formula. Earnings to sales is even below 1% so that is bad and the ROE drops out with 1.4% which is also extremely bad. The book to debt ratio is down at 0.2 which I find to be very low.
In the last five years they have had a yearly growth rate of 1.9%, so a bit more than inflation in Europe which gives a motivated P/E of 9 to 12 and then Lufthansa should be considered to be overvalued on the stock market today.
They do not to pay any dividends (the second time in the last five years) which I of course do not like.

Conclusion: Graham and I say no to Lufthansa today. The P/E is too high, the ROE too low and no dividend is also a bummer (even though the decision was correct not to pay) what scares me the most is that the book to debt has gone from 0.41 in 2013 to 0.26 in 2014 to the value today of 0.15. It costs to renew the airplane fleet and most likely here we see the effect of that. Being contrarian it could mean that now is a good moment to step in to enjoy this new Lufthansa fleet for the years to come... what do you think about Lufthansa?

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