On February 28, Tallink released its Q4 figures, showing an improvement in net profit to EUR 5.7m from EUR 0.6m last year.
Revenues increased by 4% y/y from a 1% increase in the number of passengers. Retail revenue per passenger grew by 5% y/y, driving most of the revenue growth. Sales were 2% below our expectations, mostly due to ticket revenue per passenger declining by 1.5% y/y, contrary to our expectation of stable revenues. EBITDA rising to EUR 32.1m was by 2% above our expectations, partly due to administrative expenses declin- ing by 2% y/y, but also due to non-core revenues increasing to EUR 2.8m from EUR 0.2m in Q4 2011. Below the operating profit line, a tax gain of EUR 2.8m and net gain from derivatives growing to EUR 0.6m from EUR -2.4m last year led to net profit of EUR 5.7m, while we had expected a loss of EUR 0.5m. How- ever, we regard the positive effects from net financial expenses in Q4 as non- recurring in 2013e. With a year-end net debt/EBITDA of 4.7x, cash of EUR 65.6m and good transparency on the debt repayment schedule, we expect Tal- link to announce EUR 0.03 dividends for the 2012 financial year.
Tallink also released February traffic statistics, showing an increase of 0.7% y/y in the number of passengers. The Sweden-Finland route continued todecline in February, as passenger traffic was 7.4% lower. At the same time, the group’s most profitable route, Estonia-Finland, grew by 3.4%. This compares to the roughly 8% growth Port of Tallinn reported for the route’s growth, including Tallink’s competitors. The Latvia-Sweden route, the group’s only unprofitable route on the operating level in 2012, reported 44.2% growth in the volume of passengers in February, bringing YTD growth to 2%.
We have made slight changes to our estimates, increasing Estonia-Finland passenger volumes and decreasing Sweden-Finland volumes. While we ex- pect increased competition on the Sweden-Finland route to reduce the com- pany’s 2013e EBITDA to EUR 155m, we expect financing expenses to de- crease due to less debt and still low interest rates. Consequently, we antici- pate 2013e net profit to reach roughly last year’s level of EUR 56m. At a P/B of 0.8x and 2013e P/E of 10.9x, we still regard Tallink as undervalued and reiterate our target price of EUR 1.0 with a Buy recommendation.
Target Price: EUR 1.00
Share price: EUR 0.90