| Kshs 000's | HY 2009 | HY 2010 | HY 2011 |
| Total revenue | 33,488,000 | 41,214,000 | 54,587,000 |
| Total expenses | 33,326,000 | 38,834,000 | 53,913,000 |
| Operating profit | 162,000 | 2,380,000 | 1,019,000 |
| Realised gain/ (loss) on fuel derivatives | (2,706,000) | (51,000) | 1,454,000 |
| Profit before tax | 1,229,000 | 2,051,000 | 2,825,000 |
| Profit after tax | 860,000 | 1,436,000 | 2,034,000 |
| Net Margin | 2.57% | 3.48% | 3.73% |
| Earnings per share | 1.86 | 3.11 | 4.40 |
| Change from prior period | HY 2009 | HY 2010 | HY 2011 |
| Total revenue | 11% | 23% | 32% |
| Total expenses | 24% | 17% | 39% |
| Operating profit | -95% | 1,369% | -57% |
| Profit before tax | -55% | 67% | 38% |
| Profit after tax | -60% | 67% | 42% |
| Earnings per share | -56% | 67% | 41% |
Analysis:
Kenya Airways’ total revenue went up by 32% from 41.2B in 2010 to 54.6B in 2011. Pre-tax profits increased to 2.83B from the previous year’s figure of 2.05B. This represented a growth of 38%. Net profit margin was slightly higher in 2011 at 3.73%.
PAT rose by 42% to Kshs. 2.03B. A big component of the profit was a favourable outcome in its fuel hedge position.
Earnings per share grew by 41% to Kshs. 4.40. On November 2011 the share closed at Kshs. 22.75. A significant discount to the Kshs. 140 -150 range it traded between September and October 2006.
KQ’s share has underperformed the NSE 20-Share Index and the NYSE ARCA Airline Index in the year to date. KQ has declined by 52.7% since January 1, 2011 compared to 29.1% and 24.5% drops recorded by NYSE ARCA and NSE respectively.
Precision Air, a subsidiary of Kenya Airways concluded its IPO on 7 November 2011. Precision Air offered 58, 841,750 shares at Tshs. 475 per share, which translates to a PE of 50 based on the company’s most recent results. This P/E is several multiples of KQ’s which trades at a P/E of 2.61 based on the half year results to September 2011.
Compared with global airlines KQ’s share price is cheap. KLM-Air France (which holds a big stake in KQ) is trading at a P/E of about 14, Singapore Airlines and Qantas Airways have P/E ratios of about 19 and 15 respectively, despite the latter having recently grounded its flights following a labour dispute. KQ’s low P/E ratio suggests that the airline’s share is significantly undervalued.
Outlook:
Kenya Airways managed to make a profit despite the constraints it faced in the period, including increases in fuel costs and the volatility of the Kenyan Shilling against the US Dollar.
Kenya Airways shareholders approved its plan for a rights issue to raise funds for route and fleet expansion. Kenya Airways aims to double its fleet within five years and increase its already large footprint across Africa. It is expected that over 1B shares valued at approximately Kshs. 22B will be issued. The expected dilutive effect of the rights issue partially explains the recent fall in KQ’s share price.
In a bid to further strengthen its position in the regional market, the airline intends to launch a low-cost carrier to serve the East African market.
SWOT Analysis
Strengths:
· Kenya Airways’ head office is strategically placed in Nairobi; a hub which allows easy connection to Central, West, and Southern Africa.
· Serves the highest number of destinations within Africa. KQ flies to 46 Africa cities. The next closest competitor, Ethiopian Airlines, flies to 32 African destinations.
· A good safety track record
· A strong international partner: KLM-Air France
Weaknesses:
· Frequent labour disputes
· Government influence due to significant shareholding (The Kenyan government has a 23% stake).
· Susceptibility to foreign currency risk and upheavals in the world economy.
Opportunities:
· Africans are getting wealthier and are increasingly able to afford air travel
· Increase in trade within the African continent necessitating more air travel
· Continued rapid growth in Asia contributing to increased trade and travel between Asia and Africa
Threats:
· High and increasing cost of aviation fuel
· The lucrative African aviation market is attracting strong global players: Emirates, Qatar, Virgin Atlantic, etc are increasing their flight frequencies to African destinations.
· Improvement in road and railway infrastructure could lead to a reduction in demand for air transport. KQ’s domestic market, Kenya, is currently undertaking massive road infrastructure projects.
