OREANDA-NEWS. August 17, 2010. Aeroflot has published its 1H10 RAS results: revenue rose 18% YoY to RUB48.3b, while the cost of goods sold and gross profit likewise increased by 18%, so the company’s gross margin remained at approximately 15%, the same level as 1H09. Due to a nearly 11% drop in administrative expenses, operation profit in 1H10 grew by 28.9% YoY while the operational margin improved from 5.9% to 6.4%. Net income climbed by 17% to reach RUB3.9bn., reported the press-centre of OTKRITIE Financial Corporation.

View: Although the news is positive for Aeroflot, these RAS results are not representative of the group as a whole, hence we see the news as neutral for stock. According to the FY09 consolidated IFRS results, overall net income for the group was lower than that of Aeroflot due to losses posted by its subsidiaries (around USD36m). Non-operating income (i.e. ‘royalties’ of USD 388m in 2009) remains a serious problem for group valuations, as they are higher than the group’s operational profit (USD 277.8m). When the royalties are excluded, company revenue was loss-making.

Valuation: Aeroflot trades on a 2010 EV/EBITDA of 5.3x and on a 2010 P/E of 8.5x. The corresponding figures for global peers are 7x and 15x, respectively. Our target price for Aeroflot is currently under review.