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Lufthansa Stock: Balance Sheet Risk Remains Despite Dilutive Rights Issue

Oct. 03, 2021 10:12 AM ETDeutsche Lufthansa AG (DLAKF), DLAKY12 Comments


  • Lufthansa has announced the authorization of a €2.1 billion rights issue, mainly to repay debt owed to the German government.
  • While net debt will be reduced post-raise, debt levels are still on track to rise further over the upcoming months, depending on the pace of the recovery.
  • With further selling pressure also likely to be an additional overhang, I would be cautious at the current valuation.

Lufthansa Plane Returns From Airline"s Longest-Ever Flight

Alexander Hassenstein/Getty Images News

Major German aviation company Lufthansa's (OTCQX:DLAKF) (OTCQX:DLAKY) latest rights issue has been a long time coming now, so the announced c. €2.1 billion transaction should perhaps not have come as a major surprise. While the expected

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Comments (12)

I just purchased at an average of $6.60-6.65. The stock is down from over $37 less than 4 years ago, and the German government has proved that it will not allow their national carrier to go bankrupt. I'm not sophisticated enough or smart enough to have a better reason, other than that the broader market has gone way up and could correct sharply and the risk reward of this company seems more favorable.
I got a "rights dividend" on my DLAKY shares, can anyone explain why I got that?
@LE When did you check your Lufthansa position the last time? I guess not in a month. Lufthansa carried out a capital increase last September. Every shareholder received one submission right per share to to buy a new share for EUR 3.58. If you did not submit or sell your submission rights, they are very likely lost.
@Tobson I did not receive any info from my brokerage about it, I think they were not allowed to offer the rights to US investors due to SEC rules, did anyone here with a US brokerage account get the opportunity to buy the shares via the rights offering? Did I get this dividend (about $2 per share) in lieu of the rights?
Strike profile picture
I bought LHA.DE this a.m. at €5.85, and will buy more if it sinks lower. ttm revenues of €11b are set to be dwarfed by 2022 consensus estimates of 27b (with a high estimate of 31b). This is a definite 2 - 3 year hold for me, and I expect the SP to rise to anything between €10 - 20 by late 2022. A definite no-brainer for me.

btw, I was shocked to note the ticket price of €550 for a 3 hour flight (one way) from Malaga to Munich in Economy Class! There was only one seat left, and the plane was full both ways. These guys are raising prices like crazy. Anecdotal, I know, but I hope to compensate for sticker shock with a nice SP appreciation!
@Strike Interesting. BUT I wonder how much of the pricing is seasonal...
Strike profile picture
@leonlai911 I personally think it's permanent, because many carriers that were rivals of LH, such as the excellent and much cheaper Norwegian Airlines, have drastically reduced direct flights on Lufthansa routes.
I am more optimistic than the author. Worldwide vaccination rates (especially in emerging markets like Southeast Asia, Latin America, etc. - all popular vacation spots) will increase more and more over the coming months. Further, the promising results of Merck regarding a Covid treatment (other companies might follow) will accelerate the return of leisure travel to normality. Finally, a divesture or IPO of "Lufthansa Technik" (revenue in 2019: 6.9 billion euro) might achieve a valuation of complete Lufthansa now.
@Tobson I'm definitely more optimistic than the author, too. Because as soon as Lufthansa has paid back the government Corona aid, Lufthansa can do what it wants again. This means, for example, that it can pay out dividends again (as before Corona) or Lufthansa can take over another airline. And it should be clear to any far-sighted shareholder that we will soon see an airline battle, at least on the European market. Therefore, it is good that Lufthansa has undertaken the capital increase for the purpose of debt relief to the government.
In addition, it is not yet clear who will take over the government after Merkel. But it is already a fact that the Green Party will be given tasks in the government. And it's good to know that this party will then have no say in Lufthansa, because the government will no longer be involved.

Conclusion; if you think a little longer than a few weeks, you will certainly be happy with the Lufthansa share.
Balance sheet is one important element. There is also other element such as survival and size. Lufthansa surviving can take market from those companies that did not manage - that significantly will influence reward. There is minimal change that Lufthansa (or i.e. Tui) go insolvent - > help of government is rather granted. Dilution is a pain but still it is one of the best airline stock to play.
@Max11 Lol no. Government still needs to dump a bunch of shares. Best airlines plays are in the US. No dilution risk, incredible balance sheets...
@Max11 "Dilution is a pain"

Sadly it is more than just a pain. One more corona surge next year and my EPS gets cut in half. No thanks!
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