On May 15, UTair Airlines released its Q107 RAS financials. The company posted nearly 55% y-o-y topline growth to $140.7 mln. Costs advanced 45.5% to $133.2 mln which enabled the company to report positive EBIT of $1.2 mln. However, as a result of considerable expenses on debt servicing, the company's net profit remained negative, -$3.3 mln.
| Indicator | Q106 | Q107 | Q107/ Q106 |
| Revenue |
91.2 |
140.7 |
54.4% |
| Opex |
91.5 |
133.2 |
45.5% |
| EBIT |
-0.3 |
1.2 |
- |
| Net profit |
-3.5 |
-3.3 |
- |
Considerably stronger earnings were attributable to active development of UTair's aviation business. The company managed to ramp up passenger traffic by over 25% y-o-y in Q107. Meanwhile, helicopter operations contracted slightly. Such a trend underscores the company's strategic priorities in rolling out the aviation transport segment. Given fierce competition in the industry, we question the viability of such a strategy. In our opinion, the helicopter segment, which is characterized by stronger margins, weaker competition and generated the company's entire profit in 2006, is also very important.
A March accident involving the company's airplane in Samara still exerts a certain negative impact. The company's passenger traffic growth has been in decline y-o-y since March. In 2M07, growth topped 28%, while it was 25% in Q107 and 22% in January-April. However, we do not expect negative trends to develop and believe that UTair could post 20-25% passenger traffic growth in 2007.
Overall, we view the report as upbeat. Topline growth coupled with reduced costs clearly underscores the company's stronger margins which should push up UTair stock valuations. We reiterate our Buy recommendation on UTair commons with a fair price of $0.66 per common share which implies 25% upside potential.
0.244
0.616
