(BFM Bourse) – The German airline is up very sharply on the Frankfurt Stock Exchange this Thursday. This is also the case for other groups in the sector which are benefiting from a renewed interest in cyclical values due to a reassuring message from the American Federal Reserve.
European companies delighted the stock market in the first part of the year before falling. The pan-European Stoxx Europe Total Market Airlines index has gained another 4% since January 1, but it has fallen by almost 25% since its peak reached in mid-June.
The surge in oil prices and macroeconomic fears linked to the rise in interest rates have thus erased the majority of the sector’s stock market gains.
But this battered compartment regains some color this Thursday. Notably Lufthansa. The German airline group rose 7.8% around 3 p.m. on the Frankfurt Stock Exchange after publishing results above expectations in the third quarter.
Like all of its competitors, Lufthansa had a good summer, having transported 38 million passengers over the period from July to the end of September.
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A “solid publication” from Lufthansa
Revenues rose 8% year-on-year to €10.28 billion while adjusted operating profit climbed 31% to €1.47 billion for a corresponding margin of 14.3%. Net profit increased by 47% to 1.2 billion euros. Adjusted free cash flow generation stood at €592 million.
Deutsche Bank cites a “solid publication”, notably with an adjusted operating profit 3% higher than analysts’ consensus.
Regarding its outlook, Lufthansa indicated that it expects a green operating result in the fourth quarter. Over the whole year, the company confirmed that it wanted to generate an adjusted operating profit of more than 2.6 billion euros. As for 2024, the Over-the-Rhine company expects an operating margin of at least 8%.
But beyond Lufthansa, driven by its results, all European airlines are making progress. In Paris, Air France-KLM gained 5.4%, In London, IAG, parent company of British Ariways and Iberia, advanced by 3.3% and easyJet by 3.1%.
Support from the Fed
The Pavlovian reflex would be to think that all these groups benefit from a positive cross-reading of Lufthansa’s results. But this is not the case.
“Frankly there is nothing very surprising in Lufthansa’s results for the sector as a whole, as Air France-KLM and IAG published last week. The reaction is rather due to the speaking out of the American Federal Reserve (Fed), Wednesday evening”, judges a sector analyst based in London.
The Fed kept its key rates unchanged and its president, Jerome Powell, sent a message of caution during his press conference. But his comments are considered by the market as reassuring and more in the direction of maintaining key rates at their current level before potential reductions in 2024.
The consequence is that bond yields are falling, with the rate on the 10-year US Treasury bill falling to 4.66% this Thursday compared to 4.9% on Wednesday before the Fed meeting.
However, this relief on rates is favorable to cyclical stocks on the stock market and alleviates fears about the purchasing power of households, threatened by the tightening of credit costs.
“It is really this respite on American rates which is supporting sectors which have suffered a lot recently, such as airlines,” continues the London analyst previously cited.
Julien Marion – ©2023 BFM Bourse
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