(News Bulletin 247) – The German bank has revised its advice to “hold” against “buy” previously on the Franco-Dutch airline group. The establishment believes that taking profits is justified on the company in view of its stock market history, and makes the same observation for the British IAG.

Air transport has had the wind in its sails since the beginning of the year. Airlines benefited from solid demand and higher bookings than last year, amid a confirmation of the travel recovery. For example, Transavia, the low-cost subsidiary of Air France-KLM plans capacity (the number of routes offered, to simplify) for this summer representing around 130% of that of 2019.

As a result, the sector has jumped on the stock market, with the pan-European Stoxx Europe Total Market Airlines index gaining more than 33% since January 1. Air France-KLM for its part wins 35% over this period, and is one of the 10 largest increases in the SBF 120 since the start of the year.

But in this context, the slightest bad news can trigger significant releases. But on Wednesday, Deutsche Bank lowered its advice on the Franco-Dutch group, moving from “buy” to “hold” and reducing its target price to 1.85 euros against 2.30 euros previously.

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A collapsing pricing environment

Following this lowering of recommendation, the Air France-KLM share suffered that same day, falling 4.6% around 10:30 a.m. to 1.6175 euros. IAG, the parent company of Iberia and British Airways, fell 3.1% in London, while Deutsche Bank again downgraded its advice to “buy” to “hold” on the value listed in London , while reducing its target to 165 pence from 200 pence previously.

In a note entitled “please return to your seats”, the German bank wants to be more cautious on the sector, noting a drop in its price indicators in August over a year. Above all, for the year 2024, Deutsche Bank now expects a drop in tariffs of 6% compared to 2023, whereas it anticipated stability before, which led it to drastically reduce its profit forecast for the sector.

In this less favorable price environment which therefore seems to be on the horizon from the end of 2023, Deutsche Bank prefers the airline groups which have been cautious about increasing their flight capacity, i.e. Lufthansa, on the contrary therefore of IAG and Air France-KLM which “have been more expansive in the restoration” of these same capacities.

The bank believes that the upside potential on Air France-KLM and IAG shares is limited and therefore considers that taking profits is justified on these two shares. Because since the bank went buying on these two shares, on March 31, the securities have risen by 6% and 8%, for IAG and Air France-KLM, respectively, and have only been “beaten” by Ryanair (+14%). Hence the degradation on the two shares to “keep”.

Deutsche Bank also retained its buy advice on Ryanair, easyJet and Lufthansa, deeming them more able to withstand the deterioration in prices, given their healthy balance sheets and, for Ryanair and easyJet, a significant proportion so-called “ancillary” income (sales not linked to tickets, such as the sale of drinks and consumer goods on board).

Upcoming Air France-KLM reverse stock splits

Chance of the calendar, Air France-KLM also announced this Wednesday an important decision for its stock market title, namely a consolidation of shares. This type of operation, which is the opposite of a stock split, has no impact on the value of the shares for shareholders and is purely technical. But it improves the readability of the action, when the nominal, ie the displayed price of an action, becomes too small.

In concrete terms, current shareholders will be allocated 1 new share for 10 old shares held, and the par value of the share will therefore be multiplied by 10. The number of shares in circulation will logically be divided by 10.

For example, at today’s price, the Air France-KLM share would go from 1.675 euros to 16.75 euros, to reflect this grouping of 10 old shares for one new one.

The consolidation operations will begin on July 31 and will end on August 30 to give time to shareholders who do not own a number of shares multiple of 10 “to proceed with the purchase or sale of old shares in order to obtain a number of old shares multiple of 10”, explains the group.