Still attractive despite normalisation trends
Prospects for the 2024 tourism season are positive; travel agencies and hotels report a 20% increase in early bookings from Europe compared with 2023 as of the beginning of the year. The Tourism Ministry expects to receive 60m tourists this year s 57m in 2023 despite concerns of a less competitive currency. Benefits for aviation companies (airlines and airports) are not limited to direct traffic but also transfer traffic where the country’s location provides a natural leverage.
Aviation stocks look inexpensive and defensive in the macro context
Amidst all the complexity and uncertainty created by the macro outlook (concerns of economic slow-down after 1Q24) and accounting changes (implementation of inflation accounting, IAS29, starting with FY23 results for non-financial companies), the aviation sector stands out in terms of exposure to a growing tourism market, FX driven revenues and still inexpensive stocks (2024e EV/EBITDA multiples of 3.5-5.9x).
We raise our target prices across the board driven mainly by FX and reiterate our Buy ratings on all three stocks
Turkish Airlines offers the highest implied upside (45%), the cheapest EV/EBITDA multiple (3.5x), strong deleveraging in recent years and a year of decent FCF in 2024, in our view. TAV should start reaping the benefits of new investments starting this year and becoming more visible next year in terms of FCF and potential return of dividends. Pegasus continues to rank at the top of low-cost carriers in terms of operating margins and unit costs, a feature that we do not see changing in 2024.
Overall, we raise our TPs as shown below and retain our Buy ratings. While we expect unit prices and operating margins to normalise in 2024 (particularly airlines), we see the stocks as attractively valued on 2024e multiples and continue to highlight the positive FX exposure.
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