Wideroe Integration Will Improve Operational Efficiency And Market Reach

Key Takeaways

• Acquisition of Wideroe is expected to enhance operational efficiencies and market reach, positively impacting net margins and revenue.
  
• Capacity constraints and economic factors could boost demand and earnings, while cost reduction initiatives aim to improve margins and operational efficiency.
  
• Delays in aircraft deliveries, increased costs, and competitive pressures could challenge Norwegian Air Shuttle's capacity growth, profitability, and market share stability.

Catalysts

Provides air travel services in Norway and internationally.

• Norwegian Air Shuttle's acquisition of Wideroe is expected to yield significant synergies through 2025 as networks integrate and systems align, potentially improving net margins due to enhanced operational efficiencies and increased market reach.
  
• The introduction of a new distribution platform and interlining capabilities is anticipated to optimize pricing, upselling, and cross-selling opportunities across Norwegian and Wideroe, likely boosting revenues and improving earnings.
  
• Capacity constraints caused by Boeing delivery delays will limit supply growth in the airline industry into 2025, which may help sustain higher yields in the market, benefiting revenue and subsequently net margins.
  
• Planned cost reduction initiatives, optimization of base structures, and focus on operational efficiency are expected to reduce costs and improve net margins, positively affecting earnings.
  
• An anticipated recovery in real wage growth and a potential peak in interest rates in 2025 could bolster demand for air travel, enhancing load factors and driving revenue growth for Norwegian Air Shuttle.

Norwegian Air Shuttle Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Norwegian Air Shuttle's revenue will grow by 8.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.9% today to 5.3% in 3 years time.
• Analysts expect earnings to reach NOK 2.2 billion (and earnings per share of NOK 2.01) by about February 2028, up from NOK 1.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, up from 6.8x today. This future PE is greater than the current PE for the GB Airlines industry at 6.3x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.66%, as per the Simply Wall St company report.

Norwegian Air Shuttle Future Earnings Per Share Growth

Risks

• Delays in aircraft deliveries from Boeing, compounded by ongoing strikes, may limit Norwegian Air Shuttle's capacity growth plans, potentially impacting revenue and profitability through reduced service expansion opportunities.
  
• Increased costs due to inflation, wet lease agreements, maintenance, and unfavorable currency exchange rates could pressure net margins despite revenue growth efforts.
  
• The competitive landscape, including the emergence of SAS from Chapter 11 and Ryanair's capacity expansion, could challenge Norwegian Air Shuttle's ability to maintain or grow its market share, impacting future revenues.
  
• High operational costs and inefficiencies, coupled with external factors like aviation taxes and regulatory fees from Avinor, may strain operating margins and challenge ongoing profitability.
  
• Unsecured prepayments for aircraft in the event of Boeing's financial instability could pose financial risks, affecting the company's long-term investment strategies and financial resilience.

Valuation

• The analysts have a consensus price target of NOK13.143 for Norwegian Air Shuttle based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK18.1, and the most bearish reporting a price target of just NOK10.9.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK41.9 billion, earnings will come to NOK2.2 billion, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of NOK11.2, the analyst price target of NOK13.14 is 14.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.