Cheap Fuel Costs is Gain for Comair Limited
By Vivian Atud
- Oil prices continue to fall, this means financial hurt for many companies, but others will benefit.
- High fuel input cost sectors such as shipping, utilities, airlines, railroads and automotive all stand to gain due to reduced costs or increased sales.
- There are potential direct and indirect benefits for other sectors from low fuel costs.
Johannesburg—Sunburst Africa–The world economies have been sent on a roller coaster ride by recent fall in oil prices- both markets and politicians have been left in shock. This has set in motion a wave of commentary on the huge negative impact of such drop in oil prices on oil companies, drilling companies and the economies of oil exporting countries. There is a bright side to this story. For companies such as Comair, lower fuel costs will be a net positive, beyond the consumer impact due to savings that drivers realize at the petrol pumps. Below is a discussion of how lower fuel costs may impact Comair Limited
Comair Limited (JSE Code :COM) is one of the major players in the aviation sector in South Africa. Comair provides domestic and regional services in the Southern African market, trading under the name British Airways and kulula.com. The group headquarters are based in Kempton Park, and the group operates flights destined for locations within and outside South Africa. Cost of fuel is a major part of Comair’s operating cost. Comair among other aviation and heavy fuel input cost companies stands to gain from the fall in oil prices.
The company has seen its share prices rise as oil prices continue to fall. Comair has seen its share price up 12.63% in the last 30days. There is potential for more upside for the following reasons. Oil prices will continue to fall in the immediate term and marginally improve in the medium term. It is the festive season and there is high demand for Comair’s services.
According to the company revenue for the period ended 30th September 2014 grew to R6.3 billion (R5.4 billion). Profit before interest, dividend and taxation jumped to R416.8 million (R373.8 million). Total comprehensive income for the year attributable to the equity holders of the parent rose to R264.9 million (R227.5 million). In addition, headline earnings per share increased to 57.8 cents per share (47.9 cents per share).
Comair currently has a dividend yield of 3.12%, earnings yield of 11.8% and a PE ratio of 8.48. This presents a great opportunity for investors. However, there remains risks of sluggish economy, declining domestic passenger market and the high operating costs faced by the aviation industry. The total market size remains below the peak volume of 2008. The fall in oil prices will contribute significantly to reversing these trends and increasing earnings and returns to shareholders.
According to reports from the Comair, there is ongoing upgrades to the fleet and this will continue to improve operating efficiency while at the same time enhancing the revenue potential per flight. Comair is scheduled to take delivery of the next four new 737-800’s from Boeing in late 2015 and 2016. During the year Comair placed the first African order for the next generation of Boeing 737, the 737-8 Max. Eight of these aircraft will be delivered to Comair from 2019 to 2021. Comair is also focused on implementing technology solutions to enhance our operating performance, customer service experience and revenue generating opportunities. The pace of development in distribution technology is relentless, and Comair is intent on extracting the maximum benefit from its customer information data in order to improve on its service offering, and on the marketing of relevant products to its various customer segments. Comair is also developing new software applications for use on board the aircraft and on the ground to facilitate more efficient operating procedures
It is true that many companies and countries will suffer as a result of lower oil prices, yet there are also many companies and people who will benefit from lower fuel costs. Industries with high fuel input costs such as shipping, utilities, airlines, railroads and automotive all stand to gain due to reduced costs or increased sales. There are also indirect benefits to other sectors who do not have high fuel costs. Comair is one of the South African Companies that stands to benefit from the fall in oil prices.
Disclaimer: Information and sources in this document are from sources believed to be reliable, but cannot be guaranteed due to the nature thereof. Information contained in the report should not be construed as financial advice. Professional financial advice should be sought before any course of action is pursued. Atud and Associates (Pty) Ltd t/a Sunburst Africa shall not be responsible and disclaims all liability for any loss, liability, damage (whether directly or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable, directly or indirectly, to the use or of reliance upon any information contained in this report. The company, directors and staff may from time to time have interests in the shares mentioned in this report. Sunburst Africa is a Division of Atud and Associates- A Registered Financial Services Provider. www.atudandassociates.co.za, Tel: 0110786607, firstname.lastname@example.org, email@example.com.