A few weeks ago, the Lufthansa (WKN: 823212) get their first billion from the state bailout. The future is thus secured for the time being. After the “stabilization measures”, as they are called at Lufthansa, were approved by the board, the share jumped in joy and rose briefly to more than 12 euros.
This euphoria did not last long. Shortly afterwards, it was not certain that the shareholders would also agree to the rescue package. In the meantime, although the shareholders have agreed, the share price has continued to fall. In the past two weeks alone, the course has dropped by more than 10%.
The stock is now not far from its low, which was marked at a price of EUR 7.03 at the end of April. One share currently costs EUR 7.59 (as of July 31, 2020). Now is the threat of falling below this low point?
Lufthansa plans to expand the flight schedule
The slow price erosion is likely to be due to a whole series of triggers. On the one hand, a lot of new shares were only put into circulation at the beginning of this month. These shares were sold to the economic stabilization fund and are part of the rescue package. Overall, the number of shares in circulation has increased by 20.05%. This is how large the share of the economic stabilization fund is, which has made it the largest shareholder. This alone would mean that the price of the remaining shares would have to drop by 20%. That seems to have been made up in slow motion.
Added to this is the general uncertainty about the future of the industry in general. In the next few months, many airlines want to bring flight operations closer to the pre-crisis level. Lufthansa has already announced that the new flight plan will expand flight operations from September. Specifically, more than 90% of the short-haul destinations and more than 70% of the long-haul destinations are to be headed for again.
So there will be a much wider range of flights. But whether there will be enough passengers to fill the planes is another matter entirely. If that doesn’t happen, every single flight costs a lot of money again. In the next few years, Lufthansa will have to try to keep the money together as much as possible.
State aid will weigh on profits for years to come
After all, one is slowly asking the question of what the massive additional debt burden that the state bailout entails will mean for the result. It is perfectly clear that interest payments will continue to rise. At the same time, it will probably take a while for Lufthansa to work profitably again. Because even before the crisis, it was never exceptionally profitable. In the last financial year, the profit fell by 44% compared to the previous year to only EUR 1.2 billion. In times of significantly lower sales, it is difficult to believe that you can still work profitably somehow.
Overall, it therefore looks very much as if the Lufthansa share is facing a long, rocky road. It is unlikely that prices will rise to near the all-time high of 2017 over the next few years. For now, the management’s focus will have to be on reducing costs and restoring profitability. Otherwise, a quick repayment of government loans is not possible. And here it is particularly important to act quickly, since from 2022 the interest on state aid will rise. So the longer it takes to get the money, the greater the burden.
The post Lufthansa share again close to annual low. Is it going lower this time? appeared first on The Motley Fool Germany.
Dennis Zeipert does not own any of the stocks mentioned. The Motley Fool does not own any of the stocks mentioned.
Motley Fool Deutschland 2020