UBS turns positive on sector bellwether Lufthansa
Thursday 12 Apr 2018 Author: Lisa-Marie Janes

Investment bank UBS is warming to Germany’s largest airline Lufthansa and has outlined robust sales growth forecasts for its European peers.

The airline industry has endured a volatile spell as intense competition led to a price war, somewhat mitigated by the demise of weaker rivals Monarch and Air Berlin in 2017, and as rising oil prices have translated into higher fuel costs.

There have also been warnings from the likes of Ryanair (RYA) and Jet2 owner Dart (DTG:AIM) that ticket prices over the peak summer period may be subdued.

Lufthansa, whose shares have been falling since the start of 2018, is generally seen as a good benchmark for the wider sector.

UBS is turning positive on Lufthansa, moving its recommendation from ‘neutral’ to ‘buy’ and arguing its share price weakness is ‘overdone’. It is forecasting an increase in earnings this year once the impact of higher fuel costs is stripped out.

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‘We think volume growth will help drive profits and that underlying profits will be greater than in 2017 - our forecasts are ahead of consensus,’ says UBS analyst Jarrod Castle.

Castle believes Lufthansa will not be the only airline to experience growth in 2018, he forecasts all six European airlines under UBS coverage will grow sales in aggregate by more than 7% in 2018 and 2019.

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Specifically this list includes British Airways owner International Airlines Group (IAG), budget airlines EasyJet (EZJ) and Ryanair, Hungarian airline Wizz Air (WIZZ), Lufthansa and Air France-KLM.

Over the last year, UK-listed airlines have experienced some turbulence. While shares in Wizz Air have nearly doubled and EasyJet has advanced 55.6%, International Airlines made smaller gains of 17.7% and Ryanair is up just 6.9%. (LMJ)

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