We Initiate Coverage of Lufthansa With FVE of EUR 14; High Gearing Leads to Extreme Uncertainty

Deutsche Lufthansa is a European network carrier utilizing a hub-and-spoke model. Its major hubs are Frankfurt, Munich, Vienna and Zurich and flies under the Lufthansa, Swiss Air and Austrian Airlines brands. As a result of the coronavirus downturn the group is embarking on a cost and fleet restructuring program, which will see it emerge as a smaller business. Despite the smaller size we expect the group to become a more profitable business as a result of structural cost reductions and fleet efficiencies and forecast EBIT growth of 11% over the five-year period to 2024 from 2019 levels. However, we remain negative about the prospects for shareholder value creation due to the high level of indebtedness.