Sunday 1 May 2016

Analysis of Lufthansa 2016

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 106 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 Other Activities (consultancy to 300 airlines and 150 other customers). 

Active: Over 100 countries world wide. 

P/E: 3.8

Here you can find the previous analysis of Lufthansa 2015

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

The P/E for Lufthansa is excellent with 3.8 and the P/B is also excellent with 1.1 which gives a very clear buy signal from Graham. The earnings to sales are so, so with 5% but the ROE is excellent with almost 30%. The book to debt ratio is not that great though since it is down at 0.2.
In the last five years they have shown an ok yearly revenue growth rate of 2.2% which then gives us a motivated P/E of 9 to 13 which means that Lufthansa is today undervalued by the market.
They pay a good dividend in the size of 3.6% which does not even correspond to 15% of their earnings so if they managed to keep up the earnings the dividends should also be able to remain. Lufthansa does however change the dividend payment based on their earnings and often they do not pay out dividends.

Conclusion: Graham says yes to Lufthansa based on the formula but he as a person was very negative towards industries with heavy investments and I am uncertain. As long as the oil price will remain low these guys will make a lot of money and for this reason the P/E is looking excellent right now. The ROE is also great as is the dividend but it is more or less cut every second year and I prefer a bit of consistence. Nah, I will not go for Lufthansa.

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