fastjet

www.fastjet.com TICKER: FJET     EXCHANGE: AIM

fastjet is a low-cost carrier that launched in Tanzania on 29th November 2012. It flies 5 domestic routes, and has recently launched services between Dar es Salaam and Johannesburg in South Africa.

LATEST REPORTS

 
Cashflow breakeven seen in Q4'17
Published: Jun 30 2017

fastjet was launched in Tanzania in Nov 2012, and is currently in the process of being right-sized and turned-around by industry veteran CEO Nico Bezuidenhout (appointed Aug’16). 
After nearly 12 months of radical surgery we now feel sufficiently confident to reinstate our valuation - pitched at 24p/share, based on a blend of 2021 multiples and discounted back at 15%.
Drivers are: improved revenue visibility, a dramatic realignment of costs, faith in the management team and perhaps most importantly, the airline seems to be on track to reach cashflow breakeven in Q4’17. Albeit, this is seasonally the busiest time of year for passenger numbers.
Specifically, this morning in a trading statement ahead of the AGM, the company said that its stabilisation plan was working. Encouragingly too, with the backing of 28.5% holder and strategic investor, Solenta Aviation, the Board are also “evaluating expansion options to further geographies”.
Furthermore,  in recognition of what has been achieved in such a short space of time, fastjet was awarded the prestigious Skytrax prize of Best Low Cost Carrier in Africa at the recent Paris Airshow. Last, but certainly not least,  the business has agreed to buy 100% ownership of its name from easyGroup Holdings for $2.5m in cash.
So, with the foundations now in place to build a highly profitable and rapidly expanding business, fastjet looks well positioned to enjoy the fruits of its labours, alongside greater demand from African corporates, consumers and tourists, who are increasingly opting to travel. 
 
Major turnaround taking shape
Published: Jun 01 2017

fastjet was launched in Tanzania in  Nov 2012, and is currently in the process of being right-sized and turned-around by industry veteran CEO Nico Bezuidenhout. (appointed  August 2016) . The firm utilises a small fleet of modern jet aircraft, and has a long-term strategy to become Africa’s first low-cost, pan-continental airline.
Investing in airlines has always been a hazardous game, given the industry’s notoriously poor record of capital allocation, cyclicality and exposure to geopolitics, terrorism and the oil price. Nonetheless, real improvements are being made at fastjet, with stronger management forcing through capital discipline and more flexible cost structures, alongside greater demand from emerging market tourists, who are increasingly opting to travel abroad. 
Nico Bezuidenhout has dramatically cut variable and fixed costs by shutting unprofitable routes, matching supply with demand, replacing Airbus A319s (~145 seats) with smaller Embraer E145/190 jets, implementing new revenue initiatives and relocating the Head Office from Gatwick to Johannesburg. The upshot being that fastjet is in the process of halving its breakeven point to below $50m of annualised sales, and importantly set to be at least cashflow neutral in Q4’17, and positive thereafter. 
Looking ahead, we calculate that liquidity is set to reach a low point in October (approx $2.5m) ahead of the busy seasonal peak of Nov/Dec, and close the year around this level – obviously not leaving too much ‘wiggle room’ in the event of setbacks. Consequently, while the Tanzanian economy is showing encouraging early signs of a recovery, fastjet is not totally out of the woods just yet. 
Yet the fundamentals underpinning Africa’s airline industry remain attractive. Jet fuel prices are likely to stay low in light of significant over-capacity in the world’s crude markets. The sector suffers from relatively expensive airfares (3x-4x higher than Europe), frequent delays and poor customer service. Whilst the continent has a 1 billion population that is becoming more affluent and increasingly keen to travel. 
 
Turning the plane around
Published: Sep 21 2016

fastjet is a low-cost carrier (LCC) that launched in Tanzania on 29th November 2012. The firm is presently in the process of being turned-around by newly appointed CEO Nico Bezuidenhout.
The objective is to be profitable and cash generative as soon as possible, which we interpret to be sometime in 2018. Undoubtedly this is not an insignificant task given that yesterday the group reported an underlying EBIT loss and cash-burn of $31.0m and $25.6m respectively for the 6 months' ending June 2016 on turnover of $33.1m.
The crux of the problem is that the group had previously scaled its infrastructure assuming at least double the current volumes. Not surprisingly therefore when the Tanzanian economy deteriorated sharply in the run-up to last October's presidential elections, load factors were impacted, declining to 48% in H1'16 vs 70% LY. 
Going forward, the plan is 3-fold. Firstly to dramatically decrease the cost base, secondly better match future supply with demand, and finally to drive up traffic, revenue per passenger (-4% to $83 in H1) and aircraft utilisation (-4% to 9.4 hours/day). This will involve replacing 3 A319 jets with smaller 80-120 seater planes (15% cheaper), rationalising loss-making routes, initiating new marketing programs and cutting corporate overheads.
Mr Bezuidenhout has already done something similar before at Mango Airlines (South African Airways' low-cost carrier) and the good news is that the early indicators are positive. Indeed, subject to plane disposal and the wet-lease flight arrangements being approved by the relevant regulatory bodies, we would expect an improvement in H2'16. That would imply revenues and underlying EBIT of £40.9m and -£19m respectively, and the group ending December with circa $10 million of net cash.
 
Additional fund raise planned for July
Published: Jun 28 2016

fastjet is a low-cost carrier (LCC) that launched in Tanzania on 29th November 2012. It operates a single type fleet of modern, fuel efficient, jets on a short haul, point to point network.
Despite being operationally based >4,600 miles away in Tanzania, the company has also been buffeted by unexpected political headwinds over the past 9 months. Here, last October's Presidential Election triggered a precipitous decline in airline traffic across the whole industry, compounded by a 24% devaluation in the currency (Shilling vs US dollar).
Just prior to the vote, Fastjet had expanded its fleet from 3 to 6 A319 jets. Hence unsurprisingly, on the back of weaker demand and greater capacity, came news yesterday morning that the load factor for H1'16 had fallen to 47% from 70% LY, notwithstanding a 7% lift in volumes (390k).
The firm adding that "further finance" would now be sought from investors in July. With regards to the quantum, we would guess that in excess of $25m will need to be raised to provide sufficient cash for the next 1-2 years.
The good news is that a new, highly experienced CEO, Nico Bezuidenhout, is due to take the reins on 1st August, and will begin by conducting a wide-ranging review of "the size and type of aircraft operated, the routes flown, the relocation of our Head Office (in Gatwick) to Africa and revenue generation initiatives."
In terms of the financials, we have trimmed our 2016 sales and adjusted EBIT projections to $74m (vs $78m) and a $28m loss (vs -$26m) respectively, but believe that the above restructuring measures should stem cash burn in H2 (vs $15.3m during the 1st 4 months of 2016).
 
Headwinds continue for longer than expected
Published: Jun 03 2016

fastjet (FJET) reported its Final Results for the year to December 2015 yesterday: revenue on continuing activities was up 21% in the year, to $65.1m, and passenger numbers were up 32% to 787,771. However, during H2'15 the Tanzanian economy fell off a cliff - negatively impacted by weaker consumer/government demand due to the presidential elections in October, a 24% fall in the currency (Shilling vs US dollar) and lower commodity/oil prices. Not surprisingly fastjet's profitability deteriorated as well, as it expanded directly into the teeth of these unexpected headwinds. Indeed the timing couldn't have been worse with 2015 load factors down 6.6% to 66.7% (vs 73.3%), revenues/passenger (-8% to $82.4 vs $90.0) and EBITA loss(-23.6% to $37.9m vs $30.7m).
These tougher conditions have also persisted into 2016, with the Board already cutting costs aggressively, eliminating underperforming routes and downsizing the size of the fleet (from 6 to 5 aircraft), with another two planes possibly coming out of service later this year as operating leases expire. Going forward, we believe these measures will help stem cash burn (-$15.3m during the 1st 4 months of 2016), leaving forecasted net funds of $2m as at the period close - compared to $28.9m in December 2015 and $13.7m as at 30th April 2016.
 
On top Fastjet should be able (if required although not planned) to 'sale and leaseback' the wholly owned A319 that was purchased for around $14m back in September 2015. As such given this potential backup source of capital, the directors reckon the group has sufficient liquidity to last until June 2017 based on current estimates. Further out the Board is reviewing all options - meaning another placing is probably on the cards. 
We have reduced our 2016 sales projections ($78m vs $90m) reflecting the smaller fleet size and adverse forex swing that has affected dollar denominated ticket prices. Elsewhere in light of the uncertainty, our price target and 2017 estimates have been temporarily dropped - although they will be reinstated as soon as new funds are available.
 
Challenging conditions continue
Published: Mar 08 2016

fastjet is a low-cost carrier (LCC) that launched in Tanzania on 29th November 2012. It operates a single type fleet of modern, fuel efficient, jets on a short haul, point to point network. 
Back in December we felt that, after being impacted by October's Tanzanian presidential elections, demand for fastjet's low-cost services would rebound in Q1'16. Unfortunately (in hindsight) it appears our timings were 6-9 months too early, with the Board saying yesterday that the "challenging conditions" had persisted longer than initially thought. As a result 2016 results are now predicted to be both "materially below expectations" and cashflow negative, with the company perhaps having to consider a fresh capital raise later in the year.
Not wishing to make the same mistake again, we have 'kitchen sinked' our revised forecasts (see below), with 2016 sales cut in half to $90m vs $180m before. However, despite these drastically lowered estimates, we still think there should be sufficient funds to see the group through to operational break-even next year.
Indeed, any future equity raise would be a worst case scenario. For one, there was still $20m of cash available as at the end of February, even after consuming $7-8m during the seasonally weaker 1st 2 months. Next, there have already been tentative improvements in flight bookings over the past couple of weeks ahead of the Easter holidays. And finally, in the unlikely event that trading failed to pick up, it should be possible to 'sale and leaseback' the A319 jet (worth around $14m) which was purchased outright in September 2015.
Looking ahead, the industry's medium/long term fundamentals remain strong. Jet fuel prices seem likely to stay low in light of significant over-capacity in the world's crude markets. Africa's aviation industry suffers from relatively expensive airfares (3x-4x higher than Europe), frequent delays and poor customer service. Nonetheless, given the cautious near term outlook, we have re-calibrated our price target from 110p to 60p/share.
 
Buffeted by transient factors
Published: Dec 22 2015

fastjet is a low-cost carrier (LCC) that launched in Tanzania on 29th November 2012. It operates a single type fleet of modern, fuel efficient, jets on a short haul, point to point network.
In a trading update yesterday, the company said that it was being buffeted by a longer than expected period of  'disruption' caused by October's Tanzanian presidential election. We think that it might take another 3 months before normal conditions return, but the group is now on the verge of moving into the black with a fleet of 6 A319s (1 owned and 5 leased) and a rapidly expanding route map,
More strategically, the industry's medium and long term fundamentals remain strong. The continent suffers from relatively expensive airfares (3x-4x higher than Europe), frequent delays and poor customer service. Furthermore, it has a 1 billion population that is becoming more affluent and increasingly keen to travel. Fertile ground for LCCs.
Indeed, in a very encouraging development this morning, the company has been granted approval to operate flights between Kenya and Tanzania under the Bilateral Air Services Agreement between the two countries.
Given the more cautious near term outlook, we have cut our forecasts with the share price target consequently falling from 229p to 110p/share, compared to today's level of 52p.

ARCHIVE

2015
The future of African air travel
Published: Oct 05 2015

fastjet is a low-cost carrier (LCC) that launched in Tanzania on 29th November 2012. It operates a single type fleet of modern, fuel efficient, jets on a short haul, point to point network that currently involves servicing 9 routes to 9 destinations in 6 African countries. 
A great opportunity lies in the fact that Africa possesses 15% of the world's population and 20% of its land mass, yet generates only 3% of global air-travel. Fastjet is making visible progress to address that and since launch has now flown more than 1.5m passengers, indeed 364k of these were in H1 2015 (+56% year-on-year).
To meet demand new aircraft are now coming on stream with the 4th A319 entering service in September, a 5th arrived in Harare (Zimbabwe) on 18 September and a 6th (the 1st to be owned) was purchased for cash on 25 September 2015 at a "discount" to its $15.5m list price. This increases capacity from approximately 28,000 seats/week in Jan'15 to a forecast 50,000 by Dec'15.
So as to finance this rapid expansion, the Board announced a £50 million placing (£47.7m net) on 1st April 2015 - representing 75.3% of the enlarged equity base - with existing and new investors at 100p per share (post 100-1 consolidation). We believe that this provides sufficient resource to fully fund the business for realising its goal of becoming Africa's most successful low-cost airline.
Local currency weakness and launch delays recently led the Board to warn of H2 being below expectations - meaning we have raised our adjusted 2015 loss before tax to $31.2m on sales of $79.1m, with closing net cash of $32.0m (vs $70m as at June) also reflecting the recent aircraft purchase.
Nonetheless, the Board remains confident of meeting market expectations for 2016, when we are forecasting turnover and adjusted PBT of $235.5m and $9.8m respectively. Continuing to take a longer term view of fastjets' potential and calculating value on DCF basis, we arrive at a target price of 262p/share, materially above current levels.
Flies into profit
Published: Jan 13 2015

fastjet is a low-cost carrier in Africa that launched in Tanzania on 29th Nov, 2012. It flies 5 domestic routes and 4 international services.
The encouraging recent update shows that not only have yields, aircraft utilisation and volumes increased dramatically, but also lower fuel prices hepled fastjet Tanzania into the black in December - generating an estimated EBITA of at least $0.5m on revenues in excess of $7m.
Looking ahead, Q1'15 is also shaping up to be much better than last year, particularly since fastjet does not currently 'hedge' its oil requirements. Also, the company has just received notification from the Zambian Civil Aviation Authority that it had successfully completed 'Phase 1' of its application for an Air Operating Certificate. Meaning that the group is very much on track to launch its second subsidiary later this year.
Our FY14 forecasts and 4.9p/share target price remain broadly unchanged. Additionally there still appears to be minimal impact from the ongoing Ebola crisis in West Africa.  
2014
Unlocking value
Published: Nov 19 2014

Last week fastjet announced that it had disposed of a 51% stake in its Tanzanian business to local nationals -  which could help to unlock substantial value in the group as we estimate that fastjet Tanzania on its own is worth 3.5p/share. 
Reinforcing the upside of rolling out the brand across multiple jurisdictions, the firm also said that it had also received an Air Service Permit from authorities in Zambia.
Current trading appears in line with our 2014 forecasts, with flights little impacted by the ongoing Ebola crisis in West Africa. But a knock-on effect of this rapid expansion has been on short term profitability and cashflow.
The Board announced that it is in discussions with a number of potential funders, including industry partners and specialist African investors: they are aiming to complete this funding by early in the New Year.
We retain our target price of 4.9p/share. This is subject to funding resolution and operational execution, but further upside is also possible when operations are launched in Uganda, Zambia and elsewhere. 
Revenues set to more than double
Published: Sep 29 2014

fastjet is a low-cost carrier that launched in Tanzania on 29th November 2012. It flies 3 domestic routes, and international services to Johannesburg (South Africa), Lusaka (Zambia), Entebbe (Uganda) and Harare (Zimbabwe). 
H1 2014 results showed revenue growth of 96% to $19m (excluding the legacy Fly540 business).Passengers flown rose 41.5%, average revenue/passenger (ie yield) was +39.3% higher to $81.65, and aircraft utilisation per day climbed 43% to 7.9hrs - ending August at a record 9.9hrs.
Going forward, we expect these positive trends to continue with H2 turnover and yield reaching $33.9m (+79% sequentially vs H1) and $90/passenger (+10% sequentially) respectively. Together producing forecast FY14 revenues of $52.9m, representing a +103% jump for the year as a whole.
On valuation, we have trimmed our FY14 forecasts - revenues down from $69.7m to $52.9m due to difficulties in opening new routes - and thus reduce the fair value price to 4.9p/share (from 6.0p), still well above current levels.
Coordinates set and heading for profit
Published: Jun 30 2014

fastjet is a low-cost carrier that launched in Tanzania on 29th November 2012. It flies 5 domestic routes, and 3 international services to Johannesburg (South Africa), Lusaka (Zambia) and Harare (Zimbabwe, starting Aug'14). 
By 2018, the target is to be flying 24 aircraft and carrying c.6m passengers - representing a 13% share of its addressable markets. Together these 4 countries have a population of approx 160m, and offer a huge opportunity for the low-cost carrier industry.
Despite being in start-up mode, 2013's underlying results (ie excluding Fly540) were bang in line with our estimates. Sales and adjusted EBITDA coming in at $26m (vs $25.9m) and -$32.2m (vs -$32.3m) respectively, with net borrowings of $21.1m closing slightly better than expected ($22m). 
Importantly, the debt figure includes $24.8m of Fly540 (largely aircraft related) finance leases, which we think will be eliminated this year when fastjet exits from this non core business. This supports our forecast December 2014 net cash balance of $11.9m (post May's $24.8m placing and open offer).
In terms of valuation, we make no change to our 6p/share target price and highlight the substantial potential upside available for risk-tolerant investors. 
Ready for take-off
Published: May 13 2014

Africa is more than three times the size of the US and home to 14% of the world's population, yet only accounts for 3% of its air-traffic. fastjet is a low-cost carrier focused on Africa that launched in Tanzania on 29th November 2012.
During the past month alone, this pioneering company has announced 4 significant steps towards achieving its goal of becoming Africa's leading low-cost carrier: a major fund raise, rising passenger numbers, restructuring Fly540, and signing a distribution deal with Expedia. 
We estimate that the recent £14.9m placing and open offer provides the group with the majority of the capital it needs to complete its ambitious growth plans.
The stock can appreciate on continued positive newsflow, indeed we think that there is substantial upside for risk-tolerant investors, as indicated by our 6.0p/share price target.
Fastjet ED investor forum
Published: Jan 28 2014

Ed Winter details the opportunities for budget airlines in Africa and how fastjet intends to capitalize on first mover advantage.
Excellent Christmas passenger figures
Published: Jan 13 2014

As further evidence that the Low Cost Carrier (LCC) model works in sub-Saharan Africa, fastjet this morning released record monthly passenger numbers for December. The company's distinctive brand and cheap fares stimulating double digit growth in Tanzania - a precursor to when services are later rolled-out via joint ventures in South Africa (Q3'14) and Kenya (Q4'15). 
2013
Africa's favourite low cost airline
Published: Dec 01 2013

fastjet is a low-cost carrier that launched in Tanzania on 29th November 2012. It flies 5 domestic routes, and has recently launched services between Dar es Salaam and Johannesburg in South Africa.
From a standing start 12 months ago, the firm has already proved the model works in Tanzania. The next task is to drive the Tanzanian unit to profitability (est Q3'14), and then roll-out services across South Africa (Q3'14) and Kenya (Q4'15). By 2018, the 'enlarged' fastjet group is forecast to carry 5.8m passengers, using a fleet of 23 (A320 family) jets, up from 3 today. 
We believe this ambitious plan is feasible, since there is enormous pent up demand in the region. In October fastjet flew a record 33,778 passengers, achieving a load factor of 70%, despite increasing capacity by 14% in the month. Currently, bookings across the entire fastjet network look strong and early indicators point to a successful festive season.
With regards to funding, a short term 'equity' facility is presently being provided by Darwin Strategic (subsidiary of Henderson Global). We expect another $5m to be drawn-down under this arrangement, until longer term finance (est $15m) is put in place after the group has restructured (mid 2014) its Fly540 'turbo-prop' business. 
The Lonrho stake overhang was cleared on 14th November. Our target price has been set at 8.5p/share, based on a 21% discount rate and assuming suitable funding is available, versus 2.7p current price.