Flughafen Zürich: Swiss DOTS opens check-in to all traders
As the holiday season gets underway, Flughafen Zürich’s shares face significant headwinds. Yet regardless of whether traders are backing the stock to take off or anticipating a steady descent, they will find the right tools on Swiss DOTS, Switzerland’s leading OTC marketplace for leveraged securities.
14 June was a special day for Swiss plane-spotters, as Flughafen Zürich served up a treat for anyone passionate about watching and photographing aircraft. A dazzling silver Douglas DC-3 flew over the airport in Kloten before landing there to celebrate the company’s 75th anniversary. “On 14 June 1948, a Swissair Douglas DC-4 was the first aircraft to take off from Zurich Airport in the direction of London,” the operating company wrote on its website. The anniversary celebrations offered a real slice of nostalgia, with visitors able to enjoy not only the historic aircraft but also an American diner-style marquee, concerts by a 50s band and even a mini-casino. Yet the biggest party of all is yet to come from 1 to 3 September, when President of the Swiss Confederation Alain Berset will be on hand to officially celebrate this milestone at the Airport Festival.
Rediscovering the joy of travel
Flughafen Zürich’s big birthday comes just in the nick of time as it seeks to banish memories of the biggest crisis since its opening all those years ago. When the coronavirus pandemic took hold in the spring of 2020, it triggered a dramatic slump in global air traffic. Where previously as many as 100’000 passengers a day bustled through the airport, the hub with the international abbreviation ZRH served less than 27’000 travellers across the whole of April 2020. The chart shows that the world’s airports have been slow to return to their customary hustle and bustle, with passenger numbers remaining well below pre-crisis levels for the past two years. Demand for travel only got a much-needed boost once the final few coronavirus restrictions around the world were eased. Zurich Airport handled more than 2.5 million passengers in May, less than 7% short of 2019 levels.
On the stock exchange, Flughafen Zürich has long since managed to close the gap to pre-COVID-19 times. After a sell-off in February/March 2020, the mid cap soon moved upwards once again and had completely reversed its losses by the following spring. However, this progress then ground to a halt, with the share price unable to break through horizontal resistance around the CHF 175/180 mark. Even in the period before the crisis, bullish investors were finding this a tough nut to crack.
Robust figures, subdued outlook
The company’s financial results for 2022 were not enough to change the long-term momentum of its share price. Results exceeded expectations, with Flughafen Zürich generating more than CHF 1 billion in revenue for the first time since 2019. At CHF 1.023 billion, revenues rose 50.5% compared to the previous year, while the company’s earnings before interest, taxes, depreciation and amortisation (EBITDA) surged by 85% to CHF 555.6 million. Analysts expected this figure to be around CHF 30 million lower on average. In addition to higher traffic volumes, cost savings also had an impact at this point, with operating expenses rising considerably slower than revenues in 2022.
Nevertheless, the airport’s perimeter fence cannot protect it from wider price pressures. In their latest outlook, management wrote that “an inflation-related increase in operating expenses is likely in the 2023 financial year, especially for personnel and security-related costs”. Back in mid-March, the company also continued to anticipate significantly higher energy costs. This combination of factors could explain the vague earnings forecast: “Overall, Flughafen Zürich AG expects to make a higher profit than in the financial year just ended.” By contrast, management were firm on traffic volumes, anticipating around 26 million passengers in 2023, 15% more than in the previous year. Yet even here the outlook is cautious, and provides an insight into the trend in the first five months of the year. Overall, the volume of passengers from January to May 2023 exceeded the previous year’s figure by more than half to reach approximately 10.5 million, almost 88% of the total recorded in 2019.
“We expect passenger volumes to return to 2019 levels by 2025,” management wrote in the company’s latest Annual Report, “from when the company will achieve even higher profitability than before the crisis.”
The company cites rising non-aviation revenues in particular as a driver of this profitability. This segment consists of the airport’s car parks as well as its commercially let properties, most notably the prestigious The Circle complex. In 2022, revenues in this division — which is responsible for more than half of the business — rose by around a fifth to CHF 532.4 million. As a result, non-aviation revenues have almost returned to 2019 levels (CHF 548.6 million).
What about the new CEO’s forecast?
While the company’s current targets still bear the hallmark of Stephan Widrig, the long-serving CEO has since handed the reins to former CFO Lukas Brosi, who has been in charge since 1 May. Brosi brings plenty of experience to the role and knows the company inside out, having worked at Flughafen Zürich AG since 2009. The Group’s new chief executive will have the perfect chance to share his vision for the airport’s future with the markets on 23 August, when the company publishes its interim report for the first half of 2023. Brosi may also take this opportunity to adjust the forecast for the current year.
In any event, analysts expect the airport operator to record double-digit percentage growth in profits after its turnaround last year. According to Reuters, the earnings per share (EPS) consensus for 2023 is CHF 7.73. If the experts are proved correct, profit will increase by almost 15% compared to the previous period. Analysts also anticipate further significant improvements over the next two years. In 2025, they expect Flughafen Zürich to achieve an average EPS of CHF 10.68, some 60 cents above the earnings figure recorded in 2019. Nevertheless, research firms’ estimates are divided when it comes to recommendations. Reuters currently lists 17 estimates for the airport operator, with eight analysts recommending a Buy and a further nine opting to Hold.
Why this investment is worthwhile
Nevertheless, Flughafen Zürich shares have launched a fresh attack on the aforementioned area of resistance just as the summer holiday season gets underway. In mid-June, the SMIM member reached its highest level since February 2022. Anyone backing the stock to take off can find the right instrument for short-term positioning on Swiss DOTS. The call warrant with knock-out (Valor 126618157) has a leverage of 4.8 and a knock-out of CHF 144.9525, more than 19% below the Flughafen Zürich share price. For another call (Valor 126618154), this gap is just 11%, which means the leverage for this open-ended instrument is higher at 8.0.
UBS also trades this popular structure on Swiss DOTS with the Flughafen Zürich underlying as a put. Traders relying on the airport stock to move downwards can choose from products including the warrant (Valor 127105224), which has a knock-out of CHF 208.8092 and leverage of 5.7. On the short side, traders can opt for a more aggressive approach by choosing another put warrant with knock-out (Valor 126618150) that offers a leverage of more than 10. The same principle applies to every variant: if the respective trading calculation does not come off, heavy losses await. In the event of a knock-out, the product owner goes away empty-handed.
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